Company Quick10K Filing
Quick10K
Covanta Holding
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$17.64 132 $2,320
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-25 Earnings, Regulation FD, Exhibits
8-K 2019-05-09 Shareholder Vote
8-K 2019-04-25 Earnings, Regulation FD, Exhibits
8-K 2019-03-08 Other Events
8-K 2019-02-14 Earnings, Regulation FD, Exhibits
8-K 2018-12-18 Other Events
8-K 2018-10-25 Earnings, Regulation FD, Exhibits
8-K 2018-10-18 Enter Agreement, Other Events, Exhibits
8-K 2018-10-03 Other Events, Exhibits
8-K 2018-10-03 Regulation FD, Other Events, Exhibits
8-K 2018-10-03 Other Events, Exhibits
8-K 2018-09-25 Officers, Exhibits
8-K 2018-08-30 Enter Agreement, Regulation FD, Exhibits
8-K 2018-08-21 Off-BS Arrangement, Exhibits
8-K 2018-07-26 Earnings, Regulation FD, Exhibits
8-K 2018-05-03 Shareholder Vote
8-K 2018-04-26 Earnings, Regulation FD, Exhibits
8-K 2018-03-01 Other Events
8-K 2018-02-22 Earnings, Regulation FD, Exhibits
8-K 2018-02-13 Other Events
PDCO Patterson Companies 2,190
PACB Pacific Biosciences of California 1,120
CIR Circor 624
UEIC Universal Electronics 607
GTIM Good Times Restaurants 28
BRTX Biorestorative Therapies 0
NTRR Neutra 0
ZIMCF ZIM 0
SHMP NaturalShrimp 0
MBHC Mercantil Bank Holding 0
CVA 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Organization and Basis of Presentation
Note 2. Recent Accounting Pronouncements
Note 3. New Business and Asset Management
Note 4. Earnings per Share and Equity
Note 5. Revenue
Note 6. Stock-Based Award Plans
Note 7. Supplementary Information
Note 8. Income Taxes
Note 9. Financial Instruments
Note 10. Derivative Instruments
Note 11. Consolidated Debt
Note 12. Leases
Note 13. Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex311-063019.htm
EX-31.2 ex312-063019.htm
EX-32 ex32-063019.htm

Covanta Holding Earnings 2019-06-30

CVA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number 1-06732
COVANTA HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
 
 
95-6021257
(State or Other Jurisdiction of
Incorporation or Organization)
 
 
(I.R.S. Employer
Identification Number)
 
 
 
 
445 South Street
Morristown
NJ
07960
(Address of Principal Executive Office)
 
 
(Zip Code)
(862345-5000
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock
CVA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ  No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated
filer
Non-accelerated
filer
Smaller reporting 
company
Emerging growth
company
þ
o
o
 
 
(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  þ
Applicable Only to Corporate Issuers:
Indicate the number of shares of the registrant’s Common Stock outstanding as of the latest practicable date.
Class
  
Outstanding at July 19, 2019
Common Stock, $0.10 par value
  
131,435,569



Table of Contents


COVANTA HOLDING CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNE 30, 2019
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER
 

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance and actual results. Developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near and long-term. These forward-looking statements should be considered in light of the information included in this report and our other filings with the Securities and Exchange Commission, including, without limitation, the Risk Factors, as well as the description of trends and other factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in our 2018 Annual Report on Form 10-K ("10K").



3

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COVANTA HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In millions, except per share amounts)
OPERATING REVENUE:
 
 
 
 
 
 
 
 
Waste and service revenue
 
$
359

 
$
333

 
$
686

 
$
645

Energy revenue
 
72

 
76

 
166

 
176

Recycled metals revenue
 
21

 
25

 
42

 
49

Other operating revenue
 
15

 
20

 
26

 
42

Total operating revenue
 
467

 
454

 
920

 
912

OPERATING EXPENSE:
 
 
 
 
 
 
 
 
Plant operating expense
 
354

 
334

 
713

 
679

Other operating expense, net
 
16

 
19

 
33

 
27

General and administrative expense
 
31

 
27

 
61

 
58

Depreciation and amortization expense
 
55


55


110


109

Impairment charges
 
1

 
37

 
1

 
37

Total operating expense
 
457

 
472

 
918

 
910

Operating income (loss)
 
10

 
(18
)
 
2

 
2

OTHER (EXPENSE) INCOME:
 
 
 
 
 
 
 
 
Interest expense
 
(36
)

(36
)

(72
)

(74
)
Net (loss) gain on sale of business and investments
 
(2
)
 

 
48

 
210

Other income (expense), net
 
1

 
(1
)
 
2

 
(1
)
Total (expense) income
 
(37
)
 
(37
)
 
(22
)
 
135

(Loss) income before income tax benefit and equity in net income from unconsolidated investments
 
(27
)
 
(55
)
 
(20
)
 
137

Income tax benefit
 
3


22


1


31

Equity in net income from unconsolidated investments
 
3

 
2

 
3

 
2

Net (loss) income
 
$
(21
)
 
$
(31
)
 
$
(16
)
 
$
170

 
 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding:
 
 
 
 
 
 
 
 
Basic
 
131

 
130

 
131


130

Diluted
 
131

 
130

 
131


132

 
 
 
 
 
 
 
 
 
(Loss) Earnings Per Share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.16
)
 
$
(0.24
)
 
$
(0.12
)

$
1.31

Diluted
 
$
(0.16
)

$
(0.24
)
 
$
(0.12
)

$
1.29

 
 
 
 
 
 
 
 
 
Cash Dividend Declared Per Share
 
$
0.25

 
$
0.25

 
$
0.50

 
$
0.50




The accompanying notes are an integral part of the condensed consolidated financial statements.

4

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Three Months Ended June 30,

Six Months Ended June 30,
 
 
2019

2018

2019

2018
 
 
 
 
 
 
 
 
 
 
 
(Unaudited, in millions)
Net (loss) income
 
$
(21
)
 
$
(31
)
 
$
(16
)
 
$
170

Foreign currency translation, net of tax expense of $0, $0, $0 and $1, respectively
 
3

 
(10
)
 
(2
)
 
2

Net unrealized gain (loss) on derivative instruments, net of tax expense (benefit) of $2, ($2), $5 and ($1), respectively
 
6

 
(5
)
 
6

 
27

Other comprehensive income (loss)
 
9


(15
)
 
4

 
29

Comprehensive (loss) income
 
$
(12
)
 
$
(46
)
 
$
(12
)
 
$
199



The accompanying notes are an integral part of the condensed consolidated financial statements.

5

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30, 2019

December 31, 2018
 
(Unaudited)
 
 
 
(In millions, except per
share amounts)
ASSETS
 
 
 
Current:
 
 
 
Cash and cash equivalents
$
102

 
$
58

Restricted funds held in trust
22

 
39

Receivables (less allowances of $8 and $8, respectively)
318

 
338

Prepaid expenses and other current assets
84

 
64

Total Current Assets
526

 
499

Property, plant and equipment, net
2,492

 
2,514

Restricted funds held in trust
8

 
8

Intangible assets, net
269

 
279

Goodwill
321

 
321

Other assets
286

 
222

Total Assets
$
3,902

 
$
3,843

LIABILITIES AND EQUITY
 
 
 
Current:
 
 
 
Current portion of long-term debt
$
16

 
$
15

Current portion of project debt
10

 
19

Accounts payable
61

 
76

Accrued expenses and other current liabilities
318

 
333

Total Current Liabilities
405

 
443

Long-term debt
2,446

 
2,327

Project debt
128

 
133

Deferred income taxes
378

 
378

Other liabilities
129

 
75

Total Liabilities
3,486

 
3,356

Commitments and Contingencies (Note 13)

 

Equity:
 
 
 
Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)

 

Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 131 shares)
14

 
14

Additional paid-in capital
848

 
841

Accumulated other comprehensive loss
(27
)
 
(33
)
Accumulated deficit
(419
)
 
(334
)
Treasury stock, at par

 
(1
)
Total equity
416

 
487

Total Liabilities and Equity
$
3,902

 
$
3,843


The accompanying notes are an integral part of the condensed consolidated financial statements.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
 
Six Months Ended June 30,
 
2019
 
2018
 
 
 
 
 
(Unaudited, in millions)
OPERATING ACTIVITIES:
 
 
 
Net (loss) income
$
(16
)
 
$
170

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
110

 
109

Amortization of deferred debt financing costs
2

 
3

Net gain on sale of business and investments
(48
)
 
(210
)
Impairment charges
1

 
37

Stock-based compensation expense
15

 
14

Equity in net income from unconsolidated investments
(3
)
 
(2
)
Deferred income taxes
(4
)
 
(28
)
Dividends from unconsolidated investments
5

 
1

Other, net
5

 
(8
)
Change in working capital, net of effects of acquisitions and dispositions
18

 
(21
)
Changes in noncurrent assets and liabilities, net
2

 
(2
)
Net cash provided by operating activities
87

 
63

INVESTING ACTIVITIES:
 
 
 
Purchase of property, plant and equipment
(93
)
 
(130
)
Acquisition of businesses, net of cash acquired
2

 
(4
)
Proceeds from the sale of assets, net of restricted cash
26

 
112

Property insurance proceeds

 
7

Payment of indemnification claim related to sale of asset

 
(7
)
Investment in equity affiliate
(8
)
 

Other, net
(1
)
 
(1
)
Net cash used in investing activities
(74
)
 
(23
)
FINANCING ACTIVITIES:
 
 
 
Proceeds from borrowings on long-term debt
14

 
30

Proceeds from borrowings on revolving credit facility
359

 
317

Payments on long-term debt
(8
)
 
(6
)
Payments on revolving credit facility
(248
)
 
(387
)
Payments on project debt
(13
)
 
(13
)
Cash dividends paid to stockholders
(68
)
 
(66
)
Payment of insurance premium financing
(14
)
 
(13
)
Other, net
(8
)
 
2

Net cash provided by (used in) financing activities
14

 
(136
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash


2

Net increase (decrease) in cash, cash equivalents and restricted cash
27

 
(94
)
Cash, cash equivalents and restricted cash at beginning of period
105

 
194

Cash, cash equivalents and restricted cash at end of period
$
132

 
$
100

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
102

 
$
39

Restricted funds held in trust- short term
22

 
37

Restricted funds held in trust- long term
8

 
24

Total cash, cash equivalents and restricted cash
$
132

 
$
100


The accompanying notes are an integral part of the condensed consolidated financial statements.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
 
Total
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Earnings (Deficit)
 
Treasury Stock
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited, in millions)
Balance as of December 31, 2018
 
136

 
$
14

 
$
841

 
$
(33
)
 
$
(334
)
 
5

 
$
(1
)
 
$
487

Cumulative effect change in accounting for ASU 2018-02 (see Note1)
 

 

 

 
2

 
(2
)
 

 

 

Stock-based compensation expense
 

 

 
8

 

 

 

 

 
8

Dividend declared
 

 

 

 

 
(34
)
 

 

 
(34
)
Shares repurchased for tax withholdings for vested stock awards
 

 

 
(8
)
 

 

 

 

 
(8
)
Other
 

 

 

 

 

 

 
1

 
1

Comprehensive (loss) income, net of income taxes
 

 

 

 
(5
)
 
5

 

 

 

Balance as of March 31, 2019
 
136

 
$
14

 
$
841

 
$
(36
)
 
$
(365
)
 
5

 
$

 
$
454

Stock-based compensation expense
 

 

 
7

 

 

 

 

 
7

Dividend declared
 

 

 

 

 
(34
)
 

 

 
(34
)
Other
 

 

 

 

 
1

 

 

 
1

Comprehensive income (loss), net of income taxes
 

 

 

 
9

 
(21
)
 

 

 
(12
)
Balance as of June 30, 2019
 
136

 
$
14

 
$
848

 
$
(27
)
 
$
(419
)
 
5

 
$

 
$
416

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
136

 
$
14

 
$
822

 
$
(55
)
 
$
(353
)
 
5

 
$
(1
)
 
$
427

Cumulative effect change in accounting for revenue recognition
 

 

 

 

 
1

 

 

 
1

Stock-based compensation expense
 

 

 
9

 

 

 

 

 
9

Dividend declared
 

 

 

 

 
(33
)
 

 

 
(33
)
Shares repurchased for tax withholdings for vested stock awards
 

 

 
(4
)
 

 

 

 

 
(4
)
Other
 

 

 
1

 

 
(1
)
 

 

 

Comprehensive income, net of income taxes
 

 

 

 
44

 
201

 

 

 
245

Balance as of March 31, 2018
 
136

 
$
14

 
$
828

 
$
(11
)
 
$
(185
)
 
5

 
$
(1
)
 
$
645

Stock-based compensation expense
 

 

 
5

 

 

 

 

 
5

Dividend declared
 

 

 

 

 
(33
)
 

 

 
(33
)
Comprehensive loss, net of income taxes
 

 

 

 
(15
)
 
(31
)
 

 

 
(46
)
Balance as of June 30, 2018
 
136

 
$
14

 
$
833

 
$
(26
)
 
$
(249
)
 
5

 
$
(1
)
 
$
571

 



The accompanying notes are an integral part of the condensed consolidated financial statements.

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Table of Contents
COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
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, LLC and its subsidiaries.

Organization
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”), and also owns and operates related waste transport, processing and disposal assets. EfW serves as both a sustainable waste management 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 and/or steam as well as from the sale of metal recovered during the EfW process. We process approximately 22 million tons of solid waste annually. We operate and/or have ownership positions in 41 energy-from-waste facilities, which are primarily located in North America and Ireland. In total, these assets produce approximately 10 million megawatt hours (“MWh”) of baseload electricity annually. We also operate a waste management infrastructure that is complementary to our core EfW business.

In addition, we offer a variety of sustainable waste management solutions in response to customer demand, including industrial, consumer products and healthcare waste handling, treatment and assured destruction, industrial wastewater treatment and disposal, product depackaging and recycling, on-site cleaning services, and transportation services. Together with our processing of non-hazardous "profiled waste" for purposes of assured destruction or sustainability goals in our EfW facilities, we offer these services under our Covanta Environmental Solutions brand.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes thereto required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in our condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated. Operating results for the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The condensed consolidated balance sheet at December 31, 2018, was derived from audited annual consolidated financial statements, but does not contain all of the notes thereto from the annual consolidated financial statements. This Form 10-Q should be read in conjunction with the Audited Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the year ended December 31, 2018 (“Form 10-K”).

Accounting Pronouncements Recently Adopted
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for adjustments to the tax effect of items in AOCI, that were originally recognized in other comprehensive income, related to the new statutory rate prescribed in the Tax Cuts and Jobs Act enacted on December 22, 2017, which reduced the US federal corporate tax rate from 35% to 21%. The amendments in this update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the US federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Effective January 1, 2019, we adopted this standard and recorded a reclassification of AOCI to accumulated deficit totaling $2 million.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as Accounting Standards Codification (“ASC") 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The standard requires a modified retrospective basis adoption.


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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


On January 1, 2019, we adopted ASC 842 using the modified retrospective method and recognized a right of use ("ROU") asset and liability in our consolidated condensed balance sheet in the amount of $57 million and $62 million, respectively, related to our operating leases where we are the lessee. There was no effect on our operating leases as lessor. Results for the six months ended June 30, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the historic accounting guidance under ASC Topic 840, Leases.

As part of the adoption, we elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to:
 
1.
Continue to apply the ASC 840 guidance, including the disclosure requirements, in the comparative periods presented in the year of adoption, the hindsight practical expedient;
2.
Continue applying our current policy for accounting for land easements that existed as of, or expired before, January 1, 2019;
3.
Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. We elected to apply this practical expedient to all underlying asset classes;
4.
Not apply the recognition requirements in ASC 842 to short-term leases; and
5.
Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial.

Refer to Note 12. Leases for additional disclosures required by ASC 842.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
The following table summarizes recent ASU's issued by the FASB that could have a material impact on our consolidated financial statements.
Standard
Description
Effective Date
Effect on the financial statements
or other significant matters
ASU 2016-13
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as amended by ASU 2018-19, 2019-04 and 2019-05.
The standard amends guidance on the impairment of financial instruments. The ASU estimates credit losses based on expected losses and provides for a simplified accounting model for purchased financial assets with credit deterioration. The standard requires a modified retrospective basis adoption through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.
First quarter of 2020, early adoption is permitted.
We are currently evaluating the impact this guidance will have on our consolidated financial statements.



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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


NOTE 3. NEW BUSINESS AND ASSET MANAGEMENT

Green Investment Group Limited Joint Venture

Rookery EfW

In March 2019, we reached financial close on the Rookery South Energy Recovery Facility (“Rookery”), a 1,600 metric ton-per-day, 60 megawatt EfW facility under construction in Bedfordshire, England. Rookery is our second investment in the UK with our strategic partner, Green Investment Group Limited (“GIG”). Through a 50/50 jointly-owned and governed entity (“Covanta Green”), we and GIG will own an 80% interest in the project. We co-developed the project with Veolia ES (UK) Limited (“Veolia”), who will own the remaining 20%. We will provide technical oversight during construction and will provide operations and maintenance (“O&M”) services for the facility, and Veolia will be responsible for supplying at least 70% of the waste processing capacity. The facility is expected to commence commercial operations in 2022.

In connection with the transaction, we received $44 million (£34 million) of total consideration for the value of our development costs incurred to date and related fees, and for GIG’s right to invest 40% in the project (50% investment in Covanta Green). For the six months ended June 30, 2019, as a result of this consideration and a step-up in the fair value of our retained equity investment, we recorded a gain of $57 million in Net gain on sale of business and investments in our condensed consolidated statement of operations. As of June 30, 2019, $22 million of the consideration received remained in Covanta Green, and as such this amount is included in Prepaid expenses and other current assets and our $15 million equity method investment is included in Other assets in our condensed consolidated balance sheet.

The fair value of our retained equity investment in Covanta Green was determined by the fair value of the consideration received from GIG for the right to invest 40% in the project.

Dublin EfW

In February 2018, we completed our first investment with GIG, Covanta Europe Assets Limited, which is structured as a 50/50 jointly-owned and governed entity between Covanta and GIG. As an initial step, we contributed 100% of our Dublin EfW project ("Dublin EfW") to the entity, and GIG acquired a 50% ownership in the entity. We retained a 50% equity interest in the entity and retained our role as O&M service provider for the facility. We received gross proceeds of $167 million ($98 million, net of existing restricted cash), which we used to repay borrowings under our Revolving Credit Facility. The sale resulted in our loss of a controlling interest in Dublin EfW, which required the entity to be deconsolidated from our financial statements as of the sale date. For the six months ended June 30, 2018, we recorded a gain on the loss of a controlling interest of the business of $204 million which is included in Net gain on sale of business and investments on our condensed consolidated statement of operations. The gain resulted from the excess of proceeds received plus the fair value of our non-controlling interest in Dublin EfW over our carrying value.

Our 50% equity interest is accounted for under the equity method of accounting. As of June 30, 2019 and December 31, 2018, our equity investment of $145 million and $149 million, respectively, is included in "Other assets" on our condensed consolidated balance sheet. The fair value of our investment was determined by the fair value of the consideration received for the 50% acquired by GIG. There were no basis differences between the fair value of the acquired investment and the carrying amounts of the underlying net assets as they were fair valued contemporaneously as of the sale date.

Divestiture of Springfield and Pittsfield EfW facilities

During the second quarter of 2019, as part of our ongoing asset rationalization and portfolio optimization efforts, we divested our Pittsfield and Springfield EfW facilities. During the first quarter, we determined that the assets and liabilities associated with these facilities met the criteria for classification as assets held for sale, but did not meet the criteria for classification as discontinued operations as this sale did not represent a strategic shift in our business. During the three and six months ended June 30, 2019, we recognized a loss of $3 million and $12 million, respectively, which is included in Net (loss) gain on sale of business and investments in our condensed consolidated statement of operations.






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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)



NOTE 4. EARNINGS PER SHARE AND EQUITY
Earnings Per Share

We calculate basic Earnings Per Share ("EPS") using net earnings for the period and the weighted average number of outstanding shares of our common stock, par value $0.10 per share, during the period. Diluted earnings per share computations, as calculated under the treasury stock method, include the weighted average number of shares of additional outstanding common stock issuable for stock options, restricted stock awards and restricted stock units whether or not currently exercisable. Diluted earnings per share does not include securities if their effect was anti-dilutive.

Basic and diluted weighted average shares outstanding were as follows (in millions):
 
 
Three Months Ended June 30,

Six Months Ended June 30,
 
 
2019

2018

2019

2018
Basic weighted average common shares outstanding
 
131

 
130

 
131

 
130

Dilutive effect of stock options, restricted stock and restricted stock units
 

 

 

 
2

Diluted weighted average common shares outstanding
 
131

 
130

 
131

 
132

Anti-dilutive stock options, restricted stock and restricted stock units excluded from the calculation of EPS
 
2

 
2

 
2

 



Equity

Accumulated Other Comprehensive (Loss) Income ("AOCI")

The changes in accumulated other comprehensive loss are as follows (in millions):
 
Foreign Currency Translation
 
Pension and Other Postretirement Plan Unrecognized Net Gain
 
Net Unrealized (Loss) Gain On Derivatives
 
Total
Balance at December 31, 2017
$
(24
)
 
$
2

 
$
(33
)
 
$
(55
)
Other comprehensive income before reclassifications

 

 

 

Amounts reclassified from accumulated other comprehensive (loss) income
2

 

 
27

 
29

Net current period comprehensive income
2

 

 
27

 
29

Balance at June 30, 2018
$
(22
)
 
$
2

 
$
(6
)
 
$
(26
)
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
(23
)
 
$
2

 
$
(12
)
 
$
(33
)
Cumulative effect change in accounting for ASU 2018-02 (see Note1)

 

 
2

 
2

Balance at January 1, 2019
(23
)
 
2

 
(10
)
 
(31
)
Other comprehensive (loss) income
(2
)
 

 
6

 
4

Net current period comprehensive (loss) income
(2
)
 

 
6

 
4

Balance at June 30, 2019
$
(25
)
 
$
2

 
$
(4
)
 
$
(27
)

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


Amount Reclassified from Accumulated Other Comprehensive (Loss) Income
Accumulated Other Comprehensive (Loss) Income Component
 
Six Months Ended June 30, 2018
 
Affected Line Item in the Condensed Consolidated Statement of Operations
 
 
 
 
 
Foreign currency translation
 
$
2

 
Net gain on sale of business and investments (1)
Interest rate swap
 
27

 
Net gain on sale of business and investments (1)
 
 
29

 
Total before tax
 
 

 
Tax benefit
Total reclassifications
 
$
29

 
Net of tax
(1) Reclassification from AOCI to Net gain on sale of business and investments, related to the loss of a controlling interest in Dublin EfW, which required the entity to be deconsolidated from our financial statements in February 2018. For additional information see Item 1. Financial Statements, Note 3. New Business and Asset Management- Green Investment Group Limited Joint Venture.

NOTE 5. REVENUE

Disaggregation of revenue

A disaggregation of revenue from contracts with customers is presented in our condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018. We have one reportable segment which comprises our entire operating business. 

Performance Obligations and Transaction Price Allocated to Remaining Performance Obligations

ASC 606 requires disclosure of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2019. The guidance provides certain conditions (identified as "practical expedients") that limit this disclosure requirement. We have contracts that meet the following practical expedients provided by ASC 606:

1.
The performance obligation is part of a contract that has an original expected duration of one year or less;
2.
Revenue is recognized from the satisfaction of the performance obligations in the amount billable to our customer that corresponds directly with the value to the customer of our performance completed to date (i.e. “right-to-invoice” practical expedient); and/or
3.
The variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service or a series of distinct services that are substantially the same and that have the same pattern of transfer to our customer (i.e. “series practical expedient”).

The following table shows our remaining performance obligations which primarily consists of the fixed consideration contained in our contracts as of June 30, 2019 (dollars in millions):
 
Total
Total remaining performance obligation
$
6,342

Percentage expected to be recognized:
 
Remainder of 2019
5
%
2020
10
%


Contract Balances

The following table reflects the balance in our contract assets, which we classify as “Accounts receivable unbilled” and present net in Accounts receivable, and our contract liabilities, which we classify as deferred revenue and present in “Accrued expenses and other current liabilities” in our condensed consolidated balance sheet (in millions):
 
 
June 30,
2019
 
December 31,
2018
Unbilled receivables
 
$
17

 
$
16

Deferred revenue
 
$
19

 
$
15




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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


For the six months ended June 30, 2019, revenue recognized that was included in deferred revenue in our condensed consolidated balance sheet at the beginning of the period totaled $8 million.

NOTE 6. STOCK-BASED AWARD PLANS
During the six months ended June 30, 2019, we awarded certain employees grants of 1,085,497 restricted stock units ("RSUs"). The RSUs will be expensed over the requisite service period. The terms of the RSUs include vesting provisions based solely on continued service. If the service criteria are satisfied, the RSUs will generally vest during March of 2020, 2021, and 2022.

During the six months ended June 30, 2019, we awarded certain employees 395,320 performance based RSUs of which 50% will vest based upon our cumulative Free Cash Flow per share target over a three year performance period and the other 50% will vest based on a total shareholder return ("TSR") against metrics consistent with market practices and our peers.

During the six months ended June 30, 2019, we awarded 81,635 RSUs and 6,236 restricted stock awards ("RSAs") for annual director compensation. In addition, during the six months ended June 30, 2019, we awarded 11,935 RSUs for quarterly director fees to certain of our directors who elected to receive RSUs in lieu of cash payments. We determined the service vesting condition of these RSU's and RSA's to be non-substantive and, in accordance with accounting principles for stock compensation, recorded the entire fair value of the awards as compensation expense on the grant date.

During the six months ended June 30, 2019, we withheld 452,025 shares of our common stock in connection with tax withholdings for vested stock awards.

Compensation expense related to our stock-based awards was as follows (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Share based compensation expense
 
$
7

 
$
5

 
$
15

 
$
14



Unrecognized stock-based compensation expense and weighted-average years to be recognized are as follows (in millions, except for weighted average years):
 
 
As of June 30, 2019
 
 
Unrecognized stock-
based compensation    
 
    Weighted-average years    
to be recognized
Restricted stock awards
 
$
1

 
0.7
Restricted stock units
 
$
25

 
1.8


NOTE 7. SUPPLEMENTARY INFORMATION
Pass through costs

Pass through costs are costs for which we receive a direct contractually committed reimbursement from the public sector client that sponsors an EfW project. These costs generally include utility charges, insurance premiums, ash residue transportation and disposal, and certain chemical costs. These costs are recorded net of public sector client reimbursements as a reduction to "Plant operating expense" in our condensed consolidated statement of operations.

Pass through costs were as follows (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Pass through costs
 
$
12

 
$
12

 
$
25

 
$
26




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COVANTA HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


Other operating expenses, net

Insurance Recoveries

Fairfax County Energy-from-Waste Facility

In February 2017, our Fairfax County energy-from-waste facility experienced a fire in the front-end receiving portion of the facility. During the first quarter of 2017, we completed our evaluation of the impact of this event and recorded an immaterial asset impairment, which we have since recovered from insurance proceeds. The facility resumed operations in December 2017. We expect to receive the remaining insurance recoveries for both property loss and business interruption during 2019.

The cost of repair or replacement of assets and business interruption losses are insured under the terms of applicable insurance policies, subject to deductibles. We recorded insurance gains, as a reduction to "Other operating expense, net," in our condensed consolidated statement of operations as follows (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Insurance gains for property and clean-up costs, net of impairment charges
 
$

 
$

 
$

 
$
7

Insurance gains for business interruption costs, net of costs incurred
 
$

 
$
1

 
$

 
$
8



Impairment Charges

During the three months ended June 30, 2018, we identified an indicator of impairment associated with certain of our EfW facilities where the expectation was, more likely than not, that the assets would not be operated through their previously estimated economic useful lives. We performed recoverability tests to determine if these facilities were impaired at June 30, 2018. As a result, based on expected cash flows utilizing Level 3 inputs, we recorded a non-cash impairment charge of $37 million to reduce the carrying value of the facilities to their estimated fair value.

NOTE 8. INCOME TAXES

We generally record our interim tax provision based upon a projection of the Company’s annual effective tax rate ("AETR"). This AETR is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. We update the AETR on a quarterly basis as the pre-tax income projections are revised and tax laws are enacted. The effective tax rate ("ETR") each period is impacted by a number of factors, including the relative mix of domestic and international earnings, adjustments to the valuation allowances and discrete items. The currently forecasted ETR may vary from the actual year-end due to the changes in these factors.

The Company’s global ETR for the six months ended June 30, 2019 and 2018 was 7% and (23)%, respectively, including discrete tax items. The increase in the ETR is primarily due to the change in the mix of earnings and the impact of non-recurring transactions.

NOTE 9. FINANCIAL INSTRUMENTS
Fair Value Measurements
Authoritative guidance associated with fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs), then significant other observable inputs (Level 2 inputs) and the lowest priority to significant unobservable inputs (Level 3 inputs). The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

For marketable securities, the carrying value of these amounts is a reasonable estimate of their fair value.
Fair values for long-term debt and project debt are determined using quoted market prices (Level 1).
The fair value of our floating to fixed rate interest rate swaps is determined using discounted cash flow valuation methodologies that apply the appropriate forward floating rate curve observable in the market to the contractual terms of our swap agreements. The fair value of the interest rate swaps is adjusted to reflect counterparty risk of non-performance,

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and is based on the counterparty’s credit spread in the credit derivatives market.
The fair values of our energy hedges were determined using the spread between our fixed price and the forward curve information available within the market.

The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we would realize in a current market exchange and are based on pertinent information available to us as of June 30, 2019. Such amounts have not been comprehensively revalued for purposes of these financial statements and current estimates of fair value may differ significantly from the amounts presented herein.

The following table presents information about the fair value measurement of our assets and liabilities as of June 30, 2019 and December 31, 2018 (in millions):
Financial Instruments Recorded at Fair Value on a Recurring Basis:
 
Fair Value Measurement Level
 
June 30, 2019

December 31, 2018
Assets:
 
 
 
 
 
 
Investments — mutual and bond funds (1)
 
1
 
$
2

 
$
2

Derivative asset — energy hedges (2)
 
2
 
8

 

Total assets
 
 
 
$
10

 
$
2

Liabilities:
 
 
 
 
 
 
Derivative liability — energy hedges (3)
 
2
 
$

 
$
13

Derivative liability — interest rate swaps (3)
 
2
 
2

 

Total liabilities
 
 
 
$
2

 
$
13

(1)
Included in Other assets in the condensed consolidated balance sheets.
(2)
The short-term balance is included in Prepaid expenses and other current assets and the long-term balance is included in Other assets in the condensed consolidated balance sheets.
(3)
The short-term balance is included in Accrued expenses and other current liabilities and the long-term balance is included in Other liabilities in the condensed consolidated balance sheets.

The following financial instruments are recorded at their carrying amount (in millions):
 
 
As of June 30, 2019
 
As of December 31, 2018
Financial Instruments Recorded at
     Carrying Amount:
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Liabilities:
 
 
 
 
 
 
 
 
Long-term debt 
 
$
2,462

 
$
2,523

 
$
2,342

 
$
2,245

Project debt
 
$
138

 
$
142

 
$
152

 
$
154



We are required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, accounts receivables, prepaid expenses and other assets, accounts payable and accrued expenses approximates their carrying value on the condensed consolidated balance sheets due to their short-term nature.

In addition to the recurring fair value measurements, certain assets are measured at fair value on a non-recurring basis when an indication of impairment is identified. Long-lived assets, such as property and equipment and identifiable intangibles with finite useful lives, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there are identifiable cash flows, which is generally at the facility level. Assets are reviewed using factors including, but not limited to, our future operating plans and projected cash flows. The determination of whether impairment has occurred is based on the assets fair value as compared to the carrying value. Fair value is generally determined using an income approach, which requires discounting the estimated future cash flows associated with the asset. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.


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NOTE 10. DERIVATIVE INSTRUMENTS
Energy Price Risk

We have entered into a variety of contractual hedging arrangements, designated as cash flow hedges, in order to mitigate our exposure to energy market risk, and will continue to do so in the future. Our efforts in this regard involve only mitigation of price volatility for the energy we produce and do not involve taking positions (either long or short) on energy prices in excess of our physical generation. The amount of energy generation which we have hedged on a forward basis under agreements with various financial institutions as of June 30, 2019 is indicated in the following table (in millions):
Calendar Year
 
Hedged MWh
2019
 
2.7
2020
 
1.3
2021
 
0.2
2022
 
0.1
Total
 
4.3


As of June 30, 2019, the fair value of the energy derivative asset was $8 million. The change in fair value was recorded as a component of AOCI.

During the six months ended June 30, 2019, cash provided by and used in energy derivative settlements of $12 million and $1 million, respectively, was included in net cash provided by operating activities on our condensed consolidated statement of cash flows.

During the six months ended June 30, 2018, cash provided by and used in energy derivative settlements of $8 million and $15 million, respectively, was included in the change in net cash provided by operating activities on our condensed consolidated statement of cash flows.

Interest Rate Swaps

We may utilize derivative instruments to reduce our exposure to fluctuations in cash flows due to changes in variable interest rates paid on our direct borrowings under the senior secured revolving credit facility and term loan of our subsidiary Covanta Energy (collectively referred to as the "Credit Facilities"). To achieve that objective, during the six months ended June 30, 2019, we entered into a pay-fixed, receive-variable swap agreement with a financial institution on $100 million notional amount of our variable rate debt under the Credit Facilities. This interest rate swap is designated specifically to the Credit Facilities as a cash flow hedge and is recorded at fair value with changes in fair value recorded as a component of AOCI. For further information on our Credit Facilities see Note 11. Consolidated Debt.

As of June 30, 2019, the fair value of the interest rate swap derivative liability of $2 million was recorded in Other long-term liabilities on our condensed consolidated balance sheet.


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NOTE 11. CONSOLIDATED DEBT
Consolidated debt is as follows (in millions):
 
Average
 Rate (1)
 
June 30, 2019
 
December 31, 2018
LONG-TERM DEBT:
 
 
 
 
 
Revolving credit facility
4.35%
 
$
323