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			~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934			~~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)

(862) 345-5000

(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
Common Stock, $0.10 par value per share	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 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~~ Rule��12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

Accelerated
filer

Non-accelerated
filer

Smaller reporting
company

Emerging growth
company

☐

(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 ~~October~~April 23, ~~2020~~2021
Common Stock, $0.10 par value						~~131,981,775~~132,972,828

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 2021


		Page
	PART I. FINANCIAL INFORMATION
		~~Page~~
Cautionary Note Regarding Forward-Looking Statements		3
Item 1.	Financial Statements	4
	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive ~~Income~~Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	5
	Condensed Consolidated Balance Sheets as of ~~September 30, 2020~~March 31, 2021 (Unaudited) and December 31, ~~2019~~2020	6
	Condensed Consolidated Statements of Cash Flow for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	7
	Condensed Consolidated Statements of Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019 (Unaudited~~(Unaudited))	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
	Note 1. Organization and Basis of Presentation	9
	Note 2. Recent Accounting Pronouncements	11
	Note ~~3. New Business~~3 . Equity and ~~Asset Management~~Earnings Per Share (“EPS”)	11
	Note ~~4. Earnings Per Share (“EPS”) and Equity~~4 . Revenue	12
	Note 5 . Stock-Based Award Plans	13
	Note ~~5. Revenue~~6 . Supplementary Information	13
	Note ~~6. Stock-Based Award Plans~~	147
	~~Note 7. Supplementary Information~~	15
	~~Note 8.~~. Income Taxes	15
	Note 9.8 . Accounts Receivable Securitization	15
	Note 9 . Credit Losses	15
	Note 1 0 . Financial Instruments	16
	Note ~~10. Credit Losses~~1	161
	~~Note 11. Financial Instruments~~	17
	~~Note 12.~~. Derivative Instruments	18
	Note ~~13.~~1 2 . Consolidated Debt	19
	Note ~~14.~~1 3 . Leases	2120
	Note ~~15.~~1 4 . Commitments and Contingencies	2321

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2524
	Consolidated Results of Operations	2826
	Adjusted EBITDA (Non-GAAP Discussion)	3530
	Liquidity and Capital Resources	3832
	Free Cash Flow (Non-GAAP Discussion)	4134
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4336
Item 4.	Controls and Procedures	4336
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4537
Item 1A.	Risk Factors	4537
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4637
Item 3.	Defaults Upon Senior Securities	4637
Item 4.	Mine Safety Disclosures	4637
Item 5.	Other Information	4637
Item 6.	Exhibits	4637
	OTHER
Signatures		4738

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 ~~2019~~2020 Annual Report on Form ~~10-K as well as Part 1, Item 2 and Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q for the period ended September 30, 2020.~~10-K.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019					2021		2020

		(Unaudited) (In millions, except per share amounts)										(Unaudited) (In millions, except per share amounts)
OPERATING REVENUE:	OPERATING REVENUE:									OPERATING REVENUE:
Waste and service revenue		$	366	$	353	$	1,056	$	1,039
Waste revenue										Waste revenue			$	343	$	340
Energy revenue	Energy revenue	93		81		264		247		Energy revenue			104		93
Recycled metals revenue		20		19		57		61
Other operating revenue		12		12		36		38
Materials sales revenue										Materials sales revenue			36		17
Services revenue										Services revenue			15		18
Total operating revenue	Total operating revenue	491		465		1,413		1,385		Total operating revenue			498		468
OPERATING EXPENSE:	OPERATING EXPENSE:									OPERATING EXPENSE:
Plant operating expense		349		325		1,050		1,038
Cost of operations										Cost of operations			398		371
Other operating expense, net	Other operating expense, net	11		10		37		43		Other operating expense, net			(4)		2
General and administrative expense	General and administrative expense	27		29		83		90		General and administrative expense			33		30
Depreciation and amortization expense	Depreciation and amortization expense	54		55		168		165		Depreciation and amortization expense			57		58
Impairment charges	Impairment charges	0		2		19		3		Impairment charges			0		19
Total operating expense	Total operating expense	441		421		1,357		1,339		Total operating expense			484		480
Operating income		50		44		56		46
OTHER (EXPENSE) INCOME:
Operating income (loss)										Operating income (loss)			14		(12)
OTHER INCOME (EXPENSE):										OTHER INCOME (EXPENSE):

Interest expense	Interest expense	(32)		(36)		(100)		(108)		Interest expense			(31)		(34)
Net gain on sale of business and investments	Net gain on sale of business and investments	0		1		9		49		Net gain on sale of business and investments			0		9
Loss on extinguishment of debt		(12)		0		(12)		0
Other (expense) income, net		0		(1)		(2)		1
Total expense		(44)		(36)		(105)		(58)
Income (loss) before income tax (expense) benefit and equity in net income from unconsolidated investments		6		8		(49)		(12)
Income tax (expense) benefit		(3)		5		6		6

Other expense										Other expense			0		(1)
Total other expense										Total other expense			(31)		(26)
Loss before income tax benefit and equity in net income from unconsolidated investments										Loss before income tax benefit and equity in net income from unconsolidated investments			(17)		(38)
Income tax benefit										Income tax benefit			18		5
Equity in net income from unconsolidated investments	Equity in net income from unconsolidated investments	2		1		3		4		Equity in net income from unconsolidated investments			1		1

Net income (loss)	Net income (loss)	$	5	$	14	$	(40)	$	(2)	Net income (loss)			$	2	$	(32)

Weighted Average Common Shares Outstanding:	Weighted Average Common Shares Outstanding:									Weighted Average Common Shares Outstanding:
Basic	Basic	132		131		132		131		Basic			132		131
Diluted	Diluted	134		133		132		131		Diluted			137		131

Earnings (Loss) Per Share:
Income (Loss) Per Share										Income (Loss) Per Share
Basic	Basic	$	0.04	$	0.11	$	(0.30)	$	(0.02)	Basic			$	0.02	$	(0.24)
Diluted	Diluted	$	0.04	$	0.10	$	(0.30)	$	(0.02)	Diluted			$	0.01	$	(0.24)

Cash Dividend Declared Per Share	Cash Dividend Declared Per Share	$	0.08	$	0.25	$	0.41	$	0.75	Cash Dividend Declared Per Share			$	0.08	$	0.25

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

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(Unaudited, in millions)
Net income (loss) $ 5 $ 14 $ (40) $ (2)
Foreign currency translation 10 (10) 10 (12)
Pension and postretirement plan unrecognized benefits 0 0 (1) 0
Net unrealized loss on derivative instruments, net of tax (benefit) expense of ($3), ($3), ($5) and $2, respectively (4) (14) (19) (8)
Other comprehensive income (loss) 6 (24) (10) (20)
Comprehensive income (loss) $ 11 $ (10) $ (50) $ (22)


	Three Months Ended March 31,
			2021		2020

		(Unaudited, in millions)
Net income (loss)			$	2	$	(32)
Foreign currency translation			(10)		(6)

Net unrealized loss on derivative instruments, net of tax benefit of $3 and $0, respectively			(2)		(4)
Other comprehensive loss			(12)		(10)





Comprehensive loss			$	(10)	$	(42)

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

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
		(In millions, except per share amounts)					(In millions, except per share amounts)
ASSETS	ASSETS					ASSETS
Current:	Current:					Current:
Cash and cash equivalents	Cash and cash equivalents	$	34	$	37	Cash and cash equivalents	$	56	$	55
Restricted funds held in trust	Restricted funds held in trust	11		18		Restricted funds held in trust	10		11
Receivables (less allowances of $6 and $9, respectively)		247		240
Receivables (less allowances of $7 and $8, respectively)						Receivables (less allowances of $7 and $8, respectively)	233		260
Prepaid expenses and other current assets	Prepaid expenses and other current assets	94		105		Prepaid expenses and other current assets	98		117

Total Current Assets	Total Current Assets	386		400		Total Current Assets	397		443
Property, plant and equipment, net	Property, plant and equipment, net	2,420		2,451		Property, plant and equipment, net	2,405		2,421
Restricted funds held in trust	Restricted funds held in trust	6		8		Restricted funds held in trust	6		6
Intangible assets, net	Intangible assets, net	242		258		Intangible assets, net	232		237
Goodwill	Goodwill	302		321		Goodwill	302		302

Other assets	Other assets	300		277		Other assets	300		297
Total Assets	Total Assets	$	3,656	$	3,715	Total Assets	$	3,642	$	3,706
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current:	Current:					Current:
Current portion of long-term debt	Current portion of long-term debt	$	18	$	17	Current portion of long-term debt	$	27	$	18
Current portion of project debt	Current portion of project debt	9		8		Current portion of project debt	9		9
Accounts payable	Accounts payable	66		36		Accounts payable	68		75
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	254		292		Accrued expenses and other current liabilities	270		303

Total Current Liabilities	Total Current Liabilities	347		353		Total Current Liabilities	374		405
Long-term debt	Long-term debt	2,417		2,366		Long-term debt	2,411		2,396
Project debt	Project debt	118		125		Project debt	115		116
Deferred income taxes	Deferred income taxes	360		372		Deferred income taxes	338		362
Other liabilities	Other liabilities	130		123		Other liabilities	114		117
Total Liabilities	Total Liabilities	3,372		3,339		Total Liabilities	3,352		3,396
Commitments and Contingencies (Note 15)
Commitments and Contingencies (Note 14)						Commitments and Contingencies (Note 14)
Equity:	Equity:					Equity:
Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)	Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)	0		0		Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)	0		0
Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 132 shares)		14		14
Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 133 shares)						Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 133 shares)	14		14
Additional paid-in capital	Additional paid-in capital	871		857		Additional paid-in capital	883		882
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(45)		(35)		Accumulated other comprehensive loss	(44)		(32)
Accumulated deficit	Accumulated deficit	(556)		(460)		Accumulated deficit	(563)		(554)
Treasury stock, at par	Treasury stock, at par	0		0		Treasury stock, at par	0		0
Total equity		284		376
Total Equity						Total Equity	290		310

Total Liabilities and Equity	Total Liabilities and Equity	$	3,656	$	3,715	Total Liabilities and Equity	$	3,642	$	3,706

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

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020

		(Unaudited, in millions)					(Unaudited, in millions)
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net loss		$	(40)	$	(2)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	2	$	(32)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	168		165		Depreciation and amortization expense	57		58
Amortization of deferred debt financing costs	Amortization of deferred debt financing costs	3		3		Amortization of deferred debt financing costs	1		1

Net gain on sale of business and investments	Net gain on sale of business and investments	(9)		(49)		Net gain on sale of business and investments	0		(9)
Impairment charges	Impairment charges	19		3		Impairment charges	0		19
Loss on extinguishment of debt		12		0

Stock-based compensation expense	Stock-based compensation expense	19		20		Stock-based compensation expense	9		8
Provision for expected credit losses		1		2

Equity in net income from unconsolidated investments	Equity in net income from unconsolidated investments	(3)		(4)		Equity in net income from unconsolidated investments	(1)		(1)
Deferred income taxes	Deferred income taxes	(7)		(9)		Deferred income taxes	(20)		(6)
Dividends from unconsolidated investments		3		5

Other, net	Other, net	4		3		Other, net	(3)		3
Change in working capital, net of effects of acquisitions and dispositions		18		(33)
Changes in noncurrent assets and liabilities, net		3		8
Change in working capital						Change in working capital	7		20

Net cash provided by operating activities	Net cash provided by operating activities	191		112		Net cash provided by operating activities	52		61
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:

Purchase of property, plant and equipment	Purchase of property, plant and equipment	(117)		(121)		Purchase of property, plant and equipment	(43)		(43)
Acquisition of businesses, net of cash acquired		0		2
Proceeds from the sale of assets, net of restricted cash		3		28

Proceeds from asset sales						Proceeds from asset sales	0		3

Investment in equity affiliates	Investment in equity affiliates	(11)		(9)		Investment in equity affiliates	(1)		(10)
Other, net	Other, net	(10)		(1)		Other, net	(1)		(1)

Net cash used in investing activities	Net cash used in investing activities	(135)		(101)		Net cash used in investing activities	(45)		(51)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Proceeds from borrowings on long-term debt	Proceeds from borrowings on long-term debt	538		75		Proceeds from borrowings on long-term debt	0		9
Proceeds from borrowings on revolving credit facility	Proceeds from borrowings on revolving credit facility	631		441		Proceeds from borrowings on revolving credit facility	97		181

Payments on long-term debt	Payments on long-term debt	(551)		(12)		Payments on long-term debt	(5)		(4)
Payments on revolving credit facility	Payments on revolving credit facility	(574)		(375)		Payments on revolving credit facility	(69)		(146)
Payments on project debt	Payments on project debt	(6)		(16)		Payments on project debt	(1)		(1)
Payment of deferred financing costs		(8)		(1)

Cash dividends paid to stockholders	Cash dividends paid to stockholders	(78)		(100)		Cash dividends paid to stockholders	(11)		(34)
Proceeds from related party note		9		0

Payment of insurance premium financing	Payment of insurance premium financing	(24)		(20)		Payment of insurance premium financing	(9)		(8)
Other, net	Other, net	(5)		(8)		Other, net	(8)		(5)

Net cash used in financing activities	Net cash used in financing activities	(68)		(16)		Net cash used in financing activities	(6)		(8)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	0		(2)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1)		(1)
Net decrease in cash, cash equivalents and restricted cash		(12)		(7)
Net increase in cash, cash equivalents and restricted cash						Net increase in cash, cash equivalents and restricted cash	0		1
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	63		105		Cash, cash equivalents and restricted cash at beginning of period	72		63
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	51	$	98	Cash, cash equivalents and restricted cash at end of period	$	72	$	64

Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	34	$	65	Cash and cash equivalents	$	56	$	42
Restricted funds held in trust- short term		11		25
Restricted funds held in trust- long term		6		8
Restricted funds held in trust - short term						Restricted funds held in trust - short term	10		14
Restricted funds held in trust - long term						Restricted funds held in trust - long term	6		8
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	51	$	98	Total cash, cash equivalents and restricted cash	$	72	$	64

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

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY


																	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated (Deficit) Earnings		Treasury Stock			Total
																	Shares	Amount								Shares	Amount

																	(Unaudited, in millions)
Balance as of December 31, 2020																Balance as of December 31, 2020	136	$	14	$	882	$	(32)	$	(554)	4	$	0	$	310
Stock-based compensation expense																Stock-based compensation expense	—	—		9		—		—		—	—		9
Dividend declared																Dividend declared	—	—		—		—		(11)		—	—		(11)
Shares issued in non-vested stock award																Shares issued in non-vested stock award	—	—		—		—		—		(1)	—		—
Shares repurchased for tax withholdings for vested stock awards																Shares repurchased for tax withholdings for vested stock awards	—	—		(8)		—		—		—	—		(8)

Comprehensive (loss) income, net of income taxes																Comprehensive (loss) income, net of income taxes	—	—		—		(12)		2		—	—		(10)
Balance as of March 31, 2021																Balance as of March 31, 2021	136	$	14	$	883	$	(44)	$	(563)	3	$	0	$	290

														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, 2019	Balance as of December 31, 2019	136	$	14	$	857	$	(35)	$	(460)	5	$	0	$	376	Balance as of December 31, 2019	136	$	14	$	857	$	(35)	$	(460)	5	$	0	$	376
Stock-based compensation expense	Stock-based compensation expense	—	—		8		—		—		—	—		8		Stock-based compensation expense	—	—		8		—		—		—	—		8
Dividend declared	Dividend declared	—	—		—		—		(34)		—	—		(34)		Dividend declared	—	—		—		—		(34)		—	—		(34)

Shares issued in non-vested stock award																Shares issued in non-vested stock award	—	—		—		—		—		(1)	—		—
Shares repurchased for tax withholdings for vested stock awards	Shares repurchased for tax withholdings for vested stock awards	—	—		(5)		—		—		(1)	—		(5)		Shares repurchased for tax withholdings for vested stock awards	—	—		(5)		—		—		—	—		(5)
Comprehensive loss, net of income taxes	Comprehensive loss, net of income taxes	—	—		—		(10)		(32)		—	—		(42)		Comprehensive loss, net of income taxes	—	—		—		(10)		(32)		—	—		(42)
Balance as of March 31, 2020	Balance as of March 31, 2020	136	$	14	$	860	$	(45)	$	(526)	4	$	0	$	303	Balance as of March 31, 2020	136	$	14	$	860	$	(45)	$	(526)	4	$	0	$	303
Stock-based compensation expense		—	—		6		—		—		—	—		6
Dividend declared		—	—		—		—		(11)		—	—		(11)
Other		—	—		1		—		—		—	—		1
Comprehensive loss, net of income taxes		—	—		—		(6)		(13)		—	—		(19)
Balance as of June 30, 2020		136	14		867		(51)		(550)		4	0		$	280
Stock-based compensation expense		—	—		5		—		—		—	—		5
Dividend declared		—	—		—		—		(11)		—	—		(11)

Other		—	—		(1)		—		0		—	0		(1)
Comprehensive loss, net of income taxes		—	—		—		6		5		—	—		11
Balance as of September 30, 2020		136	$	14	$	871	$	(45)	$	(556)	4	$	0	$	284

Balance as of December 31, 2018		136	$	14	$	841	$	(33)	$	(334)	5	$	(1)	$	487
Cumulative effect change in accounting for ASU 2018-02		—	—		—		1		(1)		—	—		0
Stock-based compensation expense		—	—		8		—		—		—	—		8
Dividend declared		—	—		—		—		(34)		—	—		(34)
Shares repurchased for tax withholdings for vested stock awards		—	—		(8)		—		—		0	—		(8)
Other		—	—		0		—		0		—	1		1
Comprehensive (loss) income, net of income taxes		—	—		—		(5)		5		—	—		0
Balance as of March 31, 2019		136	$	14	$	841	$	(37)	$	(364)	5	$	0	$	454
Stock-based compensation expense		—	—		7		—		—		—	—		7
Dividend declared		—	—		—		—		(34)		—	—		(34)
Other		—	—		—		—		1		—	0		1
Comprehensive income (loss), net of income taxes		—	—		—		9		(21)		—	—		(12)
Balance as of June 30, 2019		136	$	14	$	848	$	(28)	$	(418)	5	$	0	$	416
Stock-based compensation expense		—	—		5		—		—		—	—		5
Dividend declared		—	—		—		—		(34)		—	—		(34)

Comprehensive (loss) income, net of income taxes		—	—		—		(24)		14		—	—		(10)
Balance as of September 30, 2019		136	$	14	$	853	$	(52)	$	(438)	5	$	0	$	377

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

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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 (“WtE”), and also owns and operates related waste transport, processing and disposal assets. WtE 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 WtE facilities earn revenue from the disposal of waste, generally under long-term contracts, the generation of electricity, ~~and/or steam,~~ and from the sale of ~~metal~~metals recovered during the WtE process. We operate and/or have ownership positions in 41 WtE facilities currently in commercial operation, 39 of which are located in North America. In total, these facilities process approximately 21 million tons of solid waste ~~annually. We operate and/or have ownership positions~~annually, equivalent to 8% of the post-recycled municipal solid waste generated in ~~41 waste-to-energy~~the United States ("U.S."). Our facilities ~~39 located in North America, Ireland and Italy. In total, these assets~~ produce approximately 10 million megawatt hours (“MWh”) of baseload electricity annually. We also operate waste management infrastructure, ~~that is~~including 13 waste transfer stations, 20 material processing facilities, four landfills (primarily for ash disposal), one metals processing facility, and one ash processing facility (currently in start-up and testing phase), all of which are complementary to our core WtE business. We also have ownership positions in several projects currently in development and/or under construction in the United ~~Kingdom.~~Kingdom ("UK").

In addition, we offer a variety of sustainable waste management solutions, 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 WtE facilities, we offer these services under our Covanta Environmental Solutions ("CES") brand.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with ~~United States~~U.S. 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 condensed 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, ~~2020.~~2021. The condensed consolidated balance sheet at December 31, ~~2019,~~2020, 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 ~~2019~~2020 Annual Report on Form 10-K.

~~Accounting Pronouncements Recently Adopted~~

In August 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this guidance on January 1, 2020 on a prospective basis. The adoption of this guidance did not have a material impact on our consolidated financial statements.Reclassifications

~~In June 2016,~~Beginning in the ~~FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement~~first quarter of ~~Credit Losses on Financial Instruments,” which amends the impairment model~~2021, we revised our presentation of revenue to ~~utilize an expected loss methodology~~distinguish our waste and service activities between (a) revenue received in ~~place~~connection with accepting waste for processing or disposal and (b) revenue received for performing other services. We also aligned costs for all revenue producing activities, including construction services, under Cost of ~~the incurred loss methodology for financial instruments and off balance sheet credit exposures.~~operations. The ~~amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result~~change in ~~earlier recognition of losses. We adopted this guidance on January 1, 2020 using a modified retrospective approach. The adoption of this guidance~~presentation did not ~~have a material impact on~~affect our ~~consolidated financial statements.~~total operating revenue, total operating expense, or operating loss.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

~~Goodwill~~

~~Goodwill is the excess of our purchase price over the fair value~~The impact of the ~~net assets~~reclassifications on our unaudited condensed consolidated statement of ~~acquired businesses. We do not amortize goodwill, but we assess our goodwill for impairment at least annually. The evaluation~~operations was as follows (in millions):


For the Three Months Ended March 31, 2020
As previously reported			Reclassifications		As adjusted

OPERATING REVENUE:
Waste and service revenue (1) (3)	$	346	$	(6)	Waste revenue (1) (3)	$	340
Energy revenue	93		0		Energy revenue	93
Recycled metals revenue (2) (3)	17		0		Materials sales revenue (2) (3)	17
Other operating revenue (1) (4)	12		6		Services revenue (1) (4)	18
Total operating revenue	$	468	$	0	Total operating revenue	$	468
OPERATING EXPENSE:
Plant operating expense (5)	$	361	$	10	Cost of operations (5)	$	371
Other operating expense, net (5)	12		(10)		Other operating expense, net (5)	2
General and administrative expense	30		0		General and administrative expense	30
Depreciation and amortization expense	58		0		Depreciation and amortization expense	58
Impairment charges	19		0		Impairment charges	19
Total operating expense	$	480	$	0	Total operating expense	$	480
Operating loss	$	(12)	$	0	Operating loss	$	(12)

(1)Reflects reclassification of ~~goodwill requires~~certain services performed by CES from the ~~use of estimates of future cash flows~~former Waste and service revenue category to ~~determine~~ the ~~estimated fair value~~new Services revenue category.

(2)Reflects reclassification of the reporting unit. All goodwill is related to our 1 reportable segment, which is comprised of 2 reporting units, North America WtE and CES. If the carrying value of the reporting unit exceeds the fair value, an impairment charge is recognized to reduce the carrying valueformer Recycled metals revenue category to the ~~fair value.~~new Materials sales revenue category.

(3)Reflects reclassification of E-waste recycling revenue from the former Waste and service revenue category to the new Materials sales revenue category.

(4)Reflects reclassification of construction related revenue from the former Other operating revenue category to the new Services revenue category.

(5)Expense classified under the former Plant operating expense category is now included in the new Cost of operations category, which also reflects the reclassification of construction related expense from the Other operating expense, net category.

The goodwill recorded for our CES reporting unit totaled $46 million as of December 31, 2019, and resulted from previously acquired materials processing facilities that are specially designed to process, treat, recycle, and dispose of solid and liquid wastes, which includes waste from the commercial sector. We performed the required annual impairment review of our recorded goodwill as of October 1, 2019. Based on the results of the test performed, we determined that the estimated fair value of the CES reporting unit exceeded the carrying value by 5%; therefore, we did not record a goodwill impairment charge for the year ended December 31, 2019.Accounting Pronouncements Recently Adopted

~~Due~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove exceptions to the ~~marginal outcome of our review of goodwill recorded~~general principles in Topic 740 for ~~our CES reporting unit as of October~~allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments, and interim period income tax accounting for year-to-date losses that exceed projected losses. We adopted this guidance on January 1, 2019, we continued to monitor the CES reporting unit for impairment through the end of the first quarter of 2020. We considered the economic impacts of the novel coronavirus ("COVID-19") pandemic and the decline in waste volumes from the commercial and industrial sectors to be2021 on a triggering event and reviewed the goodwill held at the CES reporting unit. We performed an interim impairment test via a quantitative valuation as of March 31, 2020. As a result, in the first quarter of 2020, we recorded an impairment of $16 million, net of tax benefit of $3 million, which represents the carrying amount of our CES reporting unit in excess of its estimated fair value as of the testing date.

~~For our CES reporting unit, we determined an estimate of the fair value~~prospective basis. The adoption of this reporting unit by combining both the income and market approaches. The market approach was based on current trading multiples of EBITDA for companies operating in businesses similar to our CES reporting unit. In performing the test under the income approach, we utilized a discount rate of 12% and a long-term terminal growth rate of 2.5% beyond our planning period. The assumptions used in evaluating goodwill for impairment are subject to change and are tracked against historical performance.

While we believe the assumptions used were reasonable and commensurate with the views of a market participant, as we continue to monitor the CES reporting unit for impairment through the end of 2020, changes in key assumptions, including increasing the discount rate, lowering forecasts for revenue, operating margin or lowering the long-term growth rate for our CES reporting unit, could result in further impairments.

Weguidance did not ~~determine there to be a triggering event for~~have an impact on our ~~North America WtE reporting unit and concluded that the fair value of this reporting unit was not likely to be lower than the carrying value as of the interim testing date.~~consolidated financial statements.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

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 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting as amended by ASU 2021-01	This standard provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting due to the cessation of the London Interbank Offered Rate (LIBOR). The amendments are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendment in ASU 2021-01 clarifies that all derivative instruments affected by changes to interest rates used for discounting, margining or contract price alignment are in the scope of ASC 848.	First quarter of 2020 through December 31, 2022.	Generally, our debt agreements and interest rate derivatives contracts include a transition clause in the event LIBOR is discontinued, as such, we do not expect the transition of LIBOR to have a material impact on our consolidated financial statements. During Q2the second quarter of 2020, ~~the Company~~we elected to ~~apply~~adopt the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. In addition, ~~the Company~~we elected to ~~apply~~adopt the expedient to not reassess the conclusions reached on embedded derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. ~~The Company continues~~We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

~~ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~	This standard was issued with the intent to simplify various aspects of income taxes. The standard requires a prospective basis of adoption and a retrospective basis adjustment for amendments related to franchise taxes.	~~First quarter of 2021, early adoption is permitted.~~	~~We are currently evaluating the impact this standard will have on our consolidated financial statements.~~

NOTE 3. ~~NEW BUSINESS~~EQUITY AND ~~ASSET MANAGEMENT~~EARNINGS PER SHARE ("EPS")

~~Zhao County, China Venture~~Equity

~~On December 31, 2019, we made an equity investment~~Accumulated Other Comprehensive (Loss) Income ("AOCI")

The changes in a venture that signed a concession agreement with Zhao County, China for the construction and operation of a new 1,200 ton-per-day WtE facility located approximately 200 miles from Beijing ("Zhao County"). The project is being developed jointly by Covanta and a strategic local partner, Longking Energy Development Co. Ltd. Construction began in April 2020, with completion expected in 2021.AOCI are as follows (in millions):

As of September 30, 2020 and December 31, 2019, our equity investment in the venture totaled RMB 40 million ($6 million) and RMB 35 million ($5 million), respectively, which represented a 26% ownership interest. We are required to contribute an additional RMB 61 million ($9 million) by the end of 2021, at which point our eventual ownership interest in the venture is expected to increase to 49%.

In January 2020, in connection with our Zhao County agreement, we obtained local equity financing in the amount of RMB 61 million ($9 million), the proceeds of which we provided to the project in the form of a shareholder loan. The loan is due in January 2022 and is collateralized through a pledge of our equity in the project.

~~This investment is accounted for under the equity method of accounting and was included in Other assets on our consolidated balance sheets.~~


	Foreign Currency Translation		Pension and Other Postretirement Plan Unrecognized Net Gain		Net Unrealized Loss on Derivatives		Total
Balance at December 31, 2019	$	(30)	$	3	$	(8)	$	(35)
Other comprehensive loss	(6)		0		(4)		(10)
Balance at March 31, 2020	$	(36)	$	3	$	(12)	$	(45)

Balance at December 31, 2020	$	(8)	$	3	$	(27)	$	(32)
Other comprehensive loss	(10)		0		(2)		(12)
Balance at March 31, 2021	$	(18)	$	3	$	(29)	$	(44)

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

~~Green Investment Group ("GIG") Joint Venture~~

~~Newhurst~~

In February 2020, we reached financial close on the Newhurst Energy Recovery Facility (“Newhurst”), a 350,000 metric ton-per-year, 42 megawatt WtE facility under construction in Leicestershire, England. Through a 50/50 jointly-owned and governed entity (“Covanta Green”), we and GIG own a 50% interest in Newhurst with Biffa plc, a UK waste services provider, holding the remaining 50% interest. Biffa will provide approximately 70% of the waste supply to the project, and we will provide operations and maintenance services, in each case under a 20-year arrangement. Newhurst is expected to commence commercial operations in 2023.EPS

In connection with the transaction, we received $8 million (£5 million) of total consideration for the value of our development costs incurred to date and related fees and for GIG’s right to invest 25% in the project (50% investment in Covanta Green). For the ~~nine months ended~~ September 30, 2020, as a result of this consideration and a step-up in the fair value of our retained equity investment, we recorded a gain of $9 million (£7 million) in Net gain on sale of business and investments in our condensed consolidated statement of operations. As of September 30, 2020, $4 million of the consideration received remains in Covanta Green and is expected to be utilized for future equity contributions in new projects in the United Kingdom.

As of September 30, 2020, our equity method investment of $8 million was 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 in 25% in the project.

~~Rookery~~

In March 2019, we reached financial close on the Rookery South Energy Recovery Facility (“Rookery”), a 1,600 metric ton-per-day, 60 megawatt WtE facility under construction in Bedfordshire, England. Through Covanta Green, we and GIG own an 80% interest in the project. We co-developed the project with Veolia ES (UK) Limited (“Veolia”), who owns the remaining 20%. We provide technical oversight during construction and will provide operations and maintenance (“O&M”) services for the facility, and Veolia will be responsible for providing at least 70% of the waste supply for the project. 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 nine months ended September 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 September 30, 2020, $17 million of the consideration received remains in Covanta Green and is expected to be utilized for future equity contributions in new projects in the United Kingdom.

As of September 30, 2020 and December 31, 2019, our equity method investment of $5 million and $9 million, respectively, was included in Other assets on our condensed consolidated balance sheets. 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 in 40% in the project.

~~Divestiture of Springfield and Pittsfield WtE facilities~~

During the second quarter of 2019, as part of our ongoing asset rationalization and portfolio optimization efforts, we divested our Pittsfield and Springfield WtE facilities. During the nine months ended September 30, 2019, we recognized a loss of $11 million, which was included in Net 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")~~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~~EPS 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~~EPS 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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Basic weighted average common shares outstanding 132 131 132 131
Dilutive effect of stock options, restricted stock and restricted stock units 2 2 0 0
Diluted weighted average common shares outstanding 134 133 132 131
Anti-dilutive stock options, restricted stock and restricted stock units excluded from the calculation of EPS 1 0 3 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 (Loss) Net Unrealized Loss On Derivatives Total
Balance at December 31, 2018 $ (23) $ 2 $ (12) $ (33)
Cumulative effect change in accounting for ASU 2018-02 0 1 0 1
Balance at January 1, 2019 (23) 3 (12) (32)
Other comprehensive loss (12) 0 (8) (20)
Balance at September 30, 2019 $ (35) $ 3 $ (20) $ (52)
Balance at December 31, 2019 $ (30) $ 3 $ (8) $ (35)
Other comprehensive income (loss) 10 (1) (19) (10)
Balance at September 30, 2020 $ (20) $ 2 $ (27) $ (45)


	Three Months Ended March 31,
		2021	2020
Basic weighted average common shares outstanding		132	131
Dilutive effect of stock options, restricted stock and restricted stock units		5	0
Diluted weighted average common shares outstanding		137	131
Anti-dilutive stock options, restricted stock and restricted stock units excluded from the calculation of EPS		0	3

NOTE 5.4. REVENUE

Disaggregation of ~~revenue~~Revenue

A disaggregation of revenue from contracts with customers is presented in our condensed consolidated statements of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. We have one reportable segment which comprises our entire operating business.

~~Table~~ Beginning in the first quarter of ~~Contents~~2021, we revised our presentation of revenue and reclassified the prior years' amounts to conform to the current year's presentation. For additional information, see

~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

Note 1. Organization and Basis of Presentation.

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 ~~September 30, 2020.~~March 31, 2021. The guidance provides certain conditions (identified as "practical expedients") that limit this disclosure requirement. We ~~exclude from our disclosures~~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”).

Our remaining performance obligations primarily consist of the fixed consideration contained in our contracts. As of ~~September 30, 2020~~March 31, 2021, our total remaining performance ~~obligations were $6.0~~obligation was $5.8 billion, of which we expect to recognize 3%9% for the remainder of ~~2020~~2021 and 11% in ~~2021.~~2022.

Contract Balances

The following table reflects the balance in our contract assets, which we classify as ~~accounts~~Accounts receivable - unbilled and present net in Receivables, 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~~sheets (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Unbilled receivables	Unbilled receivables	$	22	$	16	Unbilled receivables	$	26	$	23
Deferred revenue	Deferred revenue	$	16	$	18	Deferred revenue	$	19	$	17

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, revenue recognized that was included in deferred revenue in our condensed consolidated balance sheet at the beginning of the period totaled $6$5 million.

NOTE 6.5. STOCK-BASED AWARD PLANS

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we awarded certain employees grants of ~~1,692,739~~1,129,705 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 ~~2021,~~ 2022, 2023, and ~~2023.~~2024.

During the ~~nine~~three months ended ~~September 30, 2020, we awarded 158,148 RSUs and 26,160 restricted stock awards ("RSAs") for annual director compensation. In addition, during the nine months ended September 30, 2020,~~March 31, 2021, we issued ~~28,923~~7,035 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~~RSUs 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 ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we awarded certain employees grants of ~~629,094~~319,762 cumulative Free Cash Flow ("FCF") per share ~~("FCF")~~ and total shareholder return ("TSR") performance awards. The FCF awards and the TSR awards will each cliff vest at the end of the 3 year performance period, however, the number of shares delivered will vary based upon the attained level of performance and may range from 0 to 2 times the number of target units awarded.

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we withheld ~~432,967~~555,088 shares of our common stock in connection with tax withholdings for vested stock awards.

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

Compensation expense related to our stock-based awards was as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Stock-based compensation expense $ 5 $ 5 $ 19 $ 20


	Three Months Ended March 31,
		2021		2020
Stock-based compensation expense		$	9	$	8

Unrecognized stock-based compensation expense and weighted-average years to be recognized are as follows (in millions, except for weighted average years):


		As of September 30, 2020				March 31, 2021
		Unrecognized stock-based compensation		Weighted-average years to be recognized		Unrecognized stock-based compensation		Weighted-average years to be recognized
Restricted stock units	Restricted stock units	$	13	1.5	Restricted stock units	$	18	1.7
Performance awards	Performance awards	$	7	1.8	Performance awards	$	8	2.1
Restricted stock awards		$	0	0.5

Stock options					Stock options	$	2	1.7

NOTE 7.6. 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 a WtE 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~~Cost of operations in our condensed consolidated statement of operations.

Pass through costs were as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Pass through costs $ 13 $ 12 $ 36 $ 37


	Three Months Ended March 31,
		2021		2020
Pass through costs		$	11	$	13

~~Related Party Note Payable~~

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~~During June~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

Impairment Charges

Due to the marginal outcome of our review of goodwill recorded for our CES reporting unit as of October 1, 2019, we continued to monitor the CES reporting unit for impairment through the end of the first quarter of 2020. We considered the economic impacts of the novel coronavirus ("COVID-19") pandemic and the decline in waste volumes from the commercial and industrial sectors to be a triggering event and reviewed the goodwill held at the CES reporting unit. We performed an interim impairment test via a quantitative valuation as of March 31, 2020. As a result, in the first quarter of 2020, we ~~issued~~recorded an impairment of $16 million, net of tax benefit of $3 million, which represented the carrying amount of our CES reporting unit in excess of its estimated fair value as of the testing date. For the three months ended March 31, 2021, there were no indicators of impairment identified.

Equity Method Investments

Investments in investees and joint ventures accounted for under the equity method, included in Other assets on our condensed consolidated balance sheet, were as follows (in millions, except percentages):


	Ownership Interest as of March 31, 2021		March 31, 2021		Ownership Interest as of December 31, 2020		December 31, 2020
Dublin (Ireland)	50	%	$	149	50	%	$	153

Earls Gate (UK)	25	%	8		25	%	9
Rookery (UK)	40	%	11		40	%	4
Newhurst (UK)	25	%	13		25	%	9
Protos (UK)	37.5	%	3		37.5	%	6
Zhao County (China)	26	%	7		26	%	7
			$	191			$	188

For certain of our investment projects, a ~~£8 million ($9 million) note to a related party on market terms. The note is~~portion of the consideration received at financial close remained in the project. These amounts are expected to be ~~redeemed within 12 months and is classified within Accrued~~utilized for future equity contributions in projects in the UK.

The consideration receivable balances included in prepaid expenses and other ~~current liabilities~~assets on our condensed consolidated balance ~~sheet~~sheets were as ~~of September 30, 2020. If the note is not redeemed within 12 months, the final redemption date is December 2024.~~follows (in millions):


	March 31, 2021		December 31, 2020
Rookery (UK)	$	15	$	17
Newhurst (UK)	4		4
Protos (UK)	5		6
	$	24	$	27

In connection with certain equity method investments we made contributions in the form of shareholder loans. Our shareholder loan balances included in other assets - long term on our condensed consolidated balance sheets were as follows (in millions):


	March 31, 2021		December 31, 2020
Earls Gate (UK)	$	16	$	16
Newhurst (UK)	4		3
Protos (UK)	2		1
Zhao County (China)	9		9
	$	31	$	29

For additional information on our shareholder loans in connection with our equity method investments, see Note 9. Credit Losses.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

NOTE 8.7. INCOME TAXES

We generally record our interim tax provision based upon a projection of ~~the Company’s~~our 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~~Our global ETR for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 was 105% and ~~2019 was 11% and 48%~~13%, ~~respectively.~~respectively, including discrete tax items. The ~~decline in ETR was driven by differences in the magnitude of taxable gains in the periods, as well as the low level of pre-tax book income which can yield large fluctuations~~current year increase in the ETR ~~on a year-over-year basis.~~was primarily due to the combined effect of the overall increase in pre-tax income and changes in mix of earnings in certain jurisdictions.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

NOTE 9.8. ACCOUNTS RECEIVABLE SECURITIZATION

~~In December 2019, we entered into an agreement whereby we will~~We regularly sell certain receivables on a revolving basis to third-party financial institutions (the “Purchasers”) up to an aggregate purchase limit of ~~$100 million (the “Receivables Purchase Agreement" or “RPA”).~~$120 million. Transfers under the ~~RPA~~Receivables Purchase Agreement ("RPA") meet the requirements to be accounted for as sales in accordance with ~~the~~FASB ASC 860, Transfers and ~~Servicing~~Servicing. ~~topic of FASB Accounting Standards Codification.~~ We receive a discounted purchase price for each receivable sold under the RPA and will continue to service and administer the subject receivables. The weighted-average discount rate paid on accounts receivable sold was ~~1.42%~~1.03% for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

Amounts recognized in connection with the RPA were as follows (in millions):


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
Accounts receivable sold and derecognized	Accounts receivable sold and derecognized	$	570	$	0	Accounts receivable sold and derecognized	$	211	$	194
Cash proceeds received (1)	Cash proceeds received (1)	$	569	$	0	Cash proceeds received (1)	$	211	$	194

		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Pledged receivables (2)	Pledged receivables (2)	$	123	$	142	Pledged receivables (2)	$	106	$	128

(1)Represents proceeds from collections reinvested in revolving-period ~~transfers, net of discount.~~transfers. This amount was included in Net cash provided by operating activities on our condensed consolidated statement of cash flows.

(2)Secures our obligations under the RPA and provides a guarantee for the prompt payment, not collection, of all payment obligations relating to the sold receivables.

We are not required to offer to sell any receivables and the Purchasers are not committed to purchase any receivable offered. The RPA has a scheduled termination date of December ~~5, 2020,which we intend to renew prior to maturity.~~3, 2021, or such later date as agreed in writing with the Purchasers. Additionally, we may terminate the RPA at any time upon 30 days’ prior written notice. The agreement governing the RPA contains certain covenants and termination events. An occurrence of an event of default or the occurrence of a termination event could lead to the termination of the RPA. As of ~~September 30, 2020,~~March 31, 2021, we were in compliance with the covenants and no termination events had occurred. As of ~~September 30, 2020, $100 million,~~March 31, 2021, the maximum amount available under the RPA was ~~fully~~ utilized.

NOTE ~~10.~~9. CREDIT LOSSES

~~We are exposed to credit losses primarily from our trade receivables from waste disposal services, sale of electricity and/or steam and the sale of ferrous and non-ferrous metals.~~

For our trade receivables, we assess each counterparty’s ability to pay for service by conducting a credit review. The credit review considers the counterparty’s established credit rating or our assessment of the counterparty’s creditworthiness based on our analysis of their financial statements when a credit rating is not available.

We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution, payment confirmation and monitoring current economic conditions and future forecast of economic conditions, to the extent that they impact the credit loss determination and can be reasonably estimated.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

Changes in the allowance for credit losses of our trade receivables for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 were as follows (in millions):


Balance as of December 31, ~~2019~~2020	$	98
~~Provision for expected credit losses~~	1
Write-offs charged against the allowance	~~(4)~~(1)

Balance as of ~~September 30, 2020~~March 31, 2021	$	67

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~The Company~~We held the following ~~shareholder loans~~receivables in connection with our equity method investments (in millions):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Included in prepaid expenses and other assets	Included in prepaid expenses and other assets	$	21	$	22	Included in prepaid expenses and other assets	$	24	$	27
Included in other assets - long term	Included in other assets - long term	26		15		Included in other assets - long term	31		29
		$	47	$	37		$	55	$	56

We assess the collectability of the ~~shareholder loans~~receivables from our equity method investments each reporting period through the impairment analysis procedures of our equity method investments which considers the loss history of the investments and the viability of the associated development projects. As of ~~September 30, 2020~~March 31, 2021 there were no expected credit losses associated with our ~~shareholder loans.~~equity method investment receivables.

NOTE ~~11.~~10. 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 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 ~~September 30, 2020.~~March 31, 2021. 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

The following ~~table presents information about the~~financial instruments were recorded at their estimated fair value. The recurring fair value measurement of our assets and liabilities were as ~~of September 30, 2020 and December 31, 2019~~follows (in millions):


Financial Instruments Recorded at Fair Value on a Recurring Basis:	Financial Instruments Recorded at Fair Value on a Recurring Basis:	Fair Value Measurement Level	September 30, 2020		December 31, 2019		Financial Instruments Recorded at Fair Value on a Recurring Basis:	Fair Value Measurement Level	March 31, 2021		December 31, 2020
Assets:	Assets:						Assets:
Investments — mutual and bond funds (1)	Investments — mutual and bond funds (1)	1	$	2	$	2	Investments — mutual and bond funds (1)	1	$	2	$	2
Derivative asset — energy hedges ~~(1)~~(2)	Derivative asset — energy hedges ~~(1)~~(2)	2	2		12		Derivative asset — energy hedges ~~(1)~~(2)	2	0		11

Total assets	Total assets		$	4	$	14	Total assets		$	2	$	13
Liabilities:	Liabilities:						Liabilities:

Derivative liability — energy hedges (3)							Derivative liability — energy hedges (3)	2	$	3	$	0
Derivative liability — interest rate swaps ~~(2)~~(3)	Derivative liability — interest rate swaps ~~(2)~~(3)	2	$	10	$	2	Derivative liability — interest rate swaps ~~(2)~~(3)	2	7		10
Total liabilities	Total liabilities		$	10	$	2	Total liabilities		$	10	$	10

(1)Included in Other assets in the condensed consolidated balance sheets.

(2)The short-term balance was included in Prepaid expenses and other current assets and the long-term balance was included in Other assets in the condensed consolidated balance sheets.

(3)The short-term balance was included in Accrued expenses and other current liabilities and the long-term balance was included in Other liabilities in the condensed consolidated balance sheets.

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

The following financial instruments ~~are~~were recorded at their carrying amount (in millions):


		As of September 30, 2020				As of December 31, 2019					As of March 31, 2021				As of December 31, 2020
Financial Instruments Recorded at Carrying Amount:	Financial Instruments Recorded at Carrying Amount:	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Financial Instruments Recorded at Carrying Amount:	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Liabilities:	Liabilities:									Liabilities:
Long-term debt	Long-term debt	$	2,435	$	2,464	$	2,383	$	2,459	Long-term debt	$	2,438	$	2,497	$	2,414	$	2,492
Project debt	Project debt	$	127	$	132	$	133	$	138	Project debt	$	124	$	129	$	125	$	130

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. For the purpose of impairment testing, we review the recoverable amount of individual assets or groups of assets at the lowest level of which there are 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 fair value of assets as compared to their 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

NOTE ~~12.~~11. 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 ~~September 30, 2020~~March 31, 2021 is indicated in the following table (in millions):


Calendar Year	Calendar Year	Hedged MWh	Calendar Year	Hedged MWh
2020		0.9
2021	2021	2.0	2021	1.6
2022	2022	0.2	2022	0.7
2023			2023	0.1

Total	Total	3.1	Total	2.4

As of ~~September 30, 2020,~~March 31, 2021, the fair value of the energy derivative ~~asset~~liability was $2$3 million. The change in fair value was recorded as a component of AOCI.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2021, cash provided by and used in energy derivative settlements of $8 million and $2 million, respectively, was included in net cash provided by operating activities on our condensed consolidated statement of cash flows.

During the three months ended March 31, 2020, cash provided by and used in energy derivative settlements of ~~$32~~$18 million and 0, respectively, was included in net cash provided by operating activities on our condensed consolidated statement of cash flows.

During the nine months ended September 30, 2019, cash provided by and used in energy derivative settlements of $16 million and $1 million, respectively, was included 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~~a senior secured credit facility consisting of a revolving credit facility ("Revolving Credit Facility") and ~~the~~a term loan (“Term Loan”) of our subsidiary

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

Covanta Energy (collectively referred to as the "Credit Facilities"). To achieve that objective, we entered into pay-fixed, receive-variable swap agreements on $200 million notional amount of our variable rate debt under the Credit ~~Facilities during 2019 and 2020.~~Facilities. The interest rate swaps are designated specifically to the Credit Facilities as a cash flow hedge and are recorded at fair value with changes in fair value recorded as a component of AOCI. For further information on our Credit Facilities, see Note ~~13.~~12. Consolidated Debt.

As of ~~September 30, 2020,~~March 31, 2021, the fair value of the interest rate swap derivative liability ~~was $10 million. The change in fair value~~of $7 million was recorded ~~as a component of AOCI.~~in short-term and long-term liabilities on our condensed consolidated balance sheets.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

NOTE ~~13.~~12. CONSOLIDATED DEBT

Consolidated debt is as follows (in ~~millions)~~millions, except percentages):


		Average Rate (1)	September 30, 2020		December 31, 2019			Average Rate (1)	March 31, 2021		December 31, 2020
LONG-TERM DEBT:	LONG-TERM DEBT:						LONG-TERM DEBT:
Revolving credit facility	Revolving credit facility	2.66%	$	240	$	183	Revolving credit facility	2.00%	$	250	$	222
Term loan, net	Term loan, net	3.23%	377		384		Term loan, net	2.74%	372		374
Credit Facilities subtotal			617		567
Senior Notes, net of deferred financing costs			1,183		1,186
Tax-Exempt Bonds, net of deferred financing costs			539		539
Credit facilities subtotal							Credit facilities subtotal		$	622	$	596
Senior notes, net of deferred financing costs							Senior notes, net of deferred financing costs		1,184		1,184
Tax-exempt bonds, net of deferred financing costs							Tax-exempt bonds, net of deferred financing costs		540		540
Equipment financing arrangements							Equipment financing arrangements		76		78
Finance leases (2)							Finance leases (2)		7		7
China venture loan	China venture loan		9		0		China venture loan		9		9
Equipment financing arrangements			80		85
Finance Leases (2)			7		6
Total long-term debt	Total long-term debt		2,435		2,383		Total long-term debt		$	2,438	$	2,414
Less: Current portion			(18)		(17)
Less: current portion							Less: current portion		(27)		(18)
Noncurrent long-term debt	Noncurrent long-term debt		$	2,417	$	2,366	Noncurrent long-term debt		$	2,411	$	2,396

PROJECT DEBT:	PROJECT DEBT:						PROJECT DEBT:
Total project debt, net of deferred financing costs and unamortized debt premium			$	127	$	133
Less: Current portion			(9)		(8)
Total project debt							Total project debt		$	124	$	125
Less: current portion							Less: current portion		(9)		(9)
Noncurrent project debt	Noncurrent project debt		$	118	$	125	Noncurrent project debt		$	115	$	116

TOTAL CONSOLIDATED DEBT	TOTAL CONSOLIDATED DEBT		$	2,562	$	2,516	TOTAL CONSOLIDATED DEBT		$	2,562	$	2,539
Less: Current debt			(27)		(25)
Less: current debt							Less: current debt		(36)		(27)
TOTAL NONCURRENT CONSOLIDATED DEBT	TOTAL NONCURRENT CONSOLIDATED DEBT		$	2,535	$	2,491	TOTAL NONCURRENT CONSOLIDATED DEBT		$	2,526	$	2,512

(1)AsIncludes the effects of ~~September 30, 2020 and December 31, 2019, we entered into~~the interest rate swap ~~agreements~~agreement to swap to a fixed rate the variable portion of our interest rate expense on $200 million of notional amount of debt under the Credit Facilities. See Note ~~12.~~11. Derivative Instruments for further information.

(2)Excludes Union County WtE facility finance lease which is presented within project ~~debt.~~debt in our condensed consolidated balance sheets.

Our subsidiary, Covanta Energy, has ~~a senior secured credit facility consisting of a revolving credit facility (the “Revolving~~the Revolving Credit ~~Facility”)~~Facility and ~~a term loan (the “Term Loan”).~~the Term Loan. The nature and terms of our Credit Facilities, Senior Notes, Tax-Exempt Bonds, project debt and other long-term debt are described in detail in Note ~~15.~~16. Consolidated Debt in our ~~2019~~2020 Annual Report on Form 10-K.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

~~Tax Exempt Bonds (the "NFA 2020 Bonds")~~

~~In August 2020, we entered into a loan agreement with the National Finance Authority ("NFA"), a component unit of the Business Finance Authority of New Hampshire,~~Unutilized Capacity under which they agreed to issue $39.4 million 3.625% Resource Recovery Refunding Revenue Bonds Series 2020A, maturing on July 1, 2043, and $90 million 3.750% Resource Recovery Refunding Revenue Bonds Series 2020B, maturing on July 1, 2045 (collectively the "NFA Series 2020 Bonds").

~~The net proceeds of the NFA Series 2020 Bonds were used to redeem at par the outstanding principal balance of our previously outstanding New Jersey Series 2015A and Pennsylvania Series 2015A bonds.~~

In connection with the refinancing transaction, we recorded deferred financing costs of $1 million, which are being amortized through July 2, 2040, the mandatory tender date. In addition, during the three and nine months ended September 30, 2020, we recorded a $1 million write-off of unamortized issuance costs associated with the previously outstanding debt, which was recognized as a Loss on extinguishment of debt in our condensed consolidated statement of operations. The NFA Series 2020 Bonds are our senior unsecured obligations and are not guaranteed by any of our subsidiaries.

~~Senior Notes due 2030 (the "2030 Senior Notes")~~

In August 2020, we issued $400 million aggregate principal amount of Senior Notes due 2030. The 2030 Senior Notes bear interest at 5.00% per annum, payable semi-annually on March 1 and September 1 of each year commencing on March 1, 2021, and will mature on September 1, 2030. In connection with this issuance, we recognized $7 million of deferred financing costs which will be amortized over the term of the 2030 Senior Notes. Net proceeds from the sale of the 2030 Senior Notes were approximately $394 million and were used, along with cash on hand and direct borrowings under our Revolving Credit Facility, to fund the optional redemption of all of our 5.875% Senior Notes due 2024 ("2024 Senior Notes") and to pay transaction fees and expenses and accrued interest.

During the three and nine months ended September 30, 2020, in connection with the redemption of the 2024 Senior Notes, we recorded a Loss on extinguishment of debt of $10 million in our condensed consolidated statements of operations consisting of $8 million of redemption premium and a $2 million write-off of remaining deferred financing costs.

The 2030 Senior Notes constitute general unsecured obligations of the Company and will rank equal in right of payment with all existing and future senior unsecured indebtedness of the Company. The 2030 Senior Notes are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and are structurally subordinated in right of payment to all of the existing and future liabilities of the Company’s subsidiaries and their indebtedness and guarantees under the existing credit facilities of its subsidiary, Covanta Energy, LLC. The 2030 Senior Notes are not guaranteed by any of the Company’s subsidiaries.

~~Zhao County, China Venture Loan~~

~~In January 2020, in connection with our Zhao County agreement, we~~ ~~obtained local equity bridge financing in the amount of~~ RMB 61 million ($9 million). This financing is due to be repaid in January 2022 and is collateralized through a pledge of our equity in the project. We contributed the entire amount of the proceeds to the project in the form of a shareholder loan. See ~~Note 3. New Business and Asset Management~~ ~~for further information.~~

Revolving Credit Facility

As of ~~September 30, 2020,~~March 31, 2021, we had unutilized capacity under the Revolving Credit Facility as follows (in ~~millions)~~millions, except years):

Total Facility Commitment Expiring Direct Borrowings Outstanding Letters of Credit Unutilized Capacity
Revolving Credit Facility $ 900 2023 $ 240 $ 216 $ 444


	Total Facility Commitment		Expiring Year	Direct Borrowings		Outstanding Letters of Credit		Unutilized Capacity
Revolving Credit Facility	$	900	2023	$	250	$	228	$	422

Credit Agreement Covenants

The loan documentation governing the Credit Facilities contains various affirmative and negative covenants, as well as financial maintenance covenants (financial ratios), that limit our ability to engage in certain types of transactions. We were in compliance with all of the affirmative and negative covenants under the Credit Facilities as of ~~September 30, 2020.~~March 31, 2021.

2019

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

NOTE ~~14.~~13. LEASES

The components of lease expense were as follows (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
Finance leases:	Finance leases:									Finance leases:
Amortization of assets, included in Depreciation and amortization expense	Amortization of assets, included in Depreciation and amortization expense	$	2	$	1	$	6	$	5	Amortization of assets, included in Depreciation and amortization expense		$	2	$	2
Interest on lease liabilities, included in Interest expense	Interest on lease liabilities, included in Interest expense	1		1		3		3		Interest on lease liabilities, included in Interest expense		1		1
Operating leases:	Operating leases:									Operating leases:
Amortization of assets, included in Total operating expense	Amortization of assets, included in Total operating expense	1		2		5		6		Amortization of assets, included in Total operating expense		2		2
Interest on lease liabilities, included in Total operating expense	Interest on lease liabilities, included in Total operating expense	1		1		2		2		Interest on lease liabilities, included in Total operating expense		1		1
Total net lease cost	Total net lease cost	$	5	$	5	$	16	$	16	Total net lease cost		$	6	$	6

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):


	March 31, 2021		December 31, 2020
Operating leases:
Operating lease right-of-use ("ROU") assets, included in Other assets	$	42	$	43

Current operating lease liabilities, included in Accrued expenses and other current liabilities	$	7	$	6
Noncurrent operating lease liabilities, included in Other liabilities	42		43
Total operating lease liabilities	$	49	$	49

Finance leases:
Property and equipment, at cost	$	170	$	170
Accumulated amortization	(35)		(33)
Property and equipment, net	$	135	$	137

Current obligations of finance leases, included in Current portion of project debt	$	6	$	6
Finance leases, net of current obligations, included in Project debt	70		72
Current obligations of finance leases, included in Current portion of long-term debt	1		1
Finance leases, net of current obligations, included in Long-term debt	6		6
Total finance lease liabilities	$	83	$	85

2120

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

~~Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):~~

September 30, 2020 December 31, 2019
Operating leases:
Operating lease ROU assets, included in Other assets $ 45 $ 46
Current operating lease liabilities, included in Accrued expenses and other current liabilities $ 6 $ 6
Noncurrent operating lease liabilities, included in Other liabilities 44 46
Total operating lease liabilities $ 50 $ 52
Finance leases:
Property and equipment, at cost $ 170 $ 168
Accumulated amortization (31) (25)
Property and equipment, net $ 139 $ 143
Current obligations of finance leases, included in Current portion of project debt $ 6 $ 6
Finance leases, net of current obligations, included in Project debt 73 78
Current obligations of finance leases, included in Current portion of long-term debt 1 0
Finance leases, net of current obligations, included in Long-term debt 6 6
Total finance lease liabilities $ 86 $ 90

Supplemental cash flow and other information related to leases was as follows (in ~~millions)~~millions, lease term and discount rate):


		Nine Months Ended							Three Months Ended
		September 30,							March 31,
		2020			2019				2021			2020
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:							Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	Operating cash flows related to operating leases	$	6		$	7		Operating cash flows related to operating leases	$	3		$	2

Financing cash flows related to finance leases	Financing cash flows related to finance leases	$	5		$	4		Financing cash flows related to finance leases	$	2		$	2

Weighted average remaining lease term (in years):	Weighted average remaining lease term (in years):							Weighted average remaining lease term (in years):
Operating leases	Operating leases	11.4			11.8			Operating leases	11.2			11.6
Finance leases	Finance leases	31.3			33.4			Finance leases	30.8			31.8

Weighted average discount rate:	Weighted average discount rate:							Weighted average discount rate:
Operating leases	Operating leases	4.58		%	4.65		%	Operating leases	4.54		%	4.63		%
Finance leases	Finance leases	5.06		%	5.06		%	Finance leases	5.06		%	5.06		%

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

Maturities of lease liabilities were as follows (in millions):


		September 30, 2020					March 31, 2021
		Operating Leases		Finance Leases			Operating Leases		Finance Leases
Remainder of 2020		$	2	$	3
2021		9		12
Remainder of 2021						Remainder of 2021	$	8	$	9
2022	2022	8		12		2022	8		12
2023	2023	7		12		2023	7		12
2024	2024	6		11		2024	7		11
2025 and thereafter		33		105
2025						2025	6		13
2026 and thereafter						2026 and thereafter	27		92
Total lease payments	Total lease payments	65		155		Total lease payments	63		149
Less: Amounts representing interest	Less: Amounts representing interest	(15)		(69)		Less: Amounts representing interest	(14)		(66)
Total lease obligations	Total lease obligations	$	50	$	86	Total lease obligations	$	49	$	83

As of ~~September 30, 2020,~~March 31, 2021, we had no additional significant operating or finance leases that had not yet commenced.

NOTE ~~15.~~14. COMMITMENTS AND CONTINGENCIES

We and/or our subsidiaries are party to a number of claims, lawsuits and pending actions, most of which are routine and all of which are incidental to our business. We assess the likelihood of potential losses on an ongoing basis to determine whether losses are considered probable and reasonably estimable prior to recording an estimate of the outcome. If we can only estimate the range of a possible loss, an amount representing the low end of the range of possible outcomes is recorded. The final consequences of these proceedings are not presently determinable with certainty. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, accruals for our loss contingencies recorded in Accrued expenses and other current liabilities in our condensed consolidated balance sheets were $4$3 million and $3$4 million, respectively.

Environmental Matters

Our operations are subject to environmental regulatory laws and environmental remediation laws. Although our operations are occasionally subject to proceedings and orders pertaining to emissions into the environment and other environmental violations, which may result in fines, penalties, damages or other sanctions, we believe that we are in substantial compliance with existing environmental laws and regulations.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

We may be identified, along with other entities, as being among parties potentially responsible for contribution to costs associated with the correction and remediation of environmental conditions at disposal sites subject to federal and/or analogous state laws. In certain instances, we may be exposed to joint and several liabilities for remedial action or damages. Our liability in connection with such environmental claims will depend on many factors, including our volumetric share of waste, the total cost of remediation, and the financial viability of other companies that also sent waste to a given site and, in the case of divested operations, the contractual arrangement with the purchaser of such operations.

The potential costs related to the matters described below and the possible impact on future operations are uncertain due in part to the complexity of governmental laws and regulations and their interpretations, the varying costs and effectiveness of cleanup technologies, the uncertain level of insurance or other types of recovery and the questionable level of our responsibility. Although the ultimate outcome and expense of any litigation, including environmental remediation, is uncertain, we believe that the following proceedings will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Lower Passaic River Matter. In August 2004, the ~~United States~~U.S. Environmental Protection Agency (the “EPA”) notified our subsidiary, Covanta Essex Company (“Essex”) that it was a potentially responsible party (“PRP”) for Superfund response actions in the Lower Passaic River Study Area (“LPRSA”), a 17 mile stretch of river in northern New Jersey. Essex’s LPRSA costs to date are not material to its financial position and results of operations; however, to date the EPA has not sought any LPRSA remedial costs or natural resource damages against PRPs. In March 2016, the EPA released the Record of Decision (“ROD”) for its Focused Feasibility Study of the lower 8 miles of the LPRSA; the EPA’s selected remedy includes capping/dredging of sediment, institutional controls and long-term monitoring. In June 2018, PRP Occidental Chemical Corporation

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)~~

(“OCC”) filed a federal Superfund lawsuit against 120 PRPs including Essex with respect to past and future response costs expended by OCC with respect to the LPRSA. The Essex facility started operating in 1990 and Essex does not believe there have been any releases to the LPRSA, but in any event believes any releases would have been de minimis considering the history of the LPRSA; however, it is not possible at this time to predict that outcome or to estimate the range of possible loss relating to Essex’s liability in the matter, including for LPRSA remedial costs and/or natural resource damages.

Other Commitments

Other commitments as of ~~September 30, 2020~~March 31, 2021 were as follows (in millions):


Letters of credit issued under the Revolving Credit Facility	$	~~216~~228
Letters of credit -— other	3980
Surety bonds	~~133~~144
Total other commitments — net	$	~~388~~452

~~The~~We issue letters of credit ~~were issued~~ to secure our performance under various contractual undertakings related to our domestic and international projects or to secure obligations under our insurance program. Each letter of credit relating to a project is required to be maintained in effect for the period specified in related project contracts, and generally may be drawn if it is not renewed prior to expiration of that period.

programs. We believe that we will be able to fully perform under our contracts to which these existing letters of credit relate, and that it is unlikely that letters of credit would be drawn because of a default of our performance obligations. If any of these letters of credit were to be drawn by the beneficiary, the amount drawn would be immediately repayable by us to the issuing bank. If we do not immediately repay such amounts drawn under letters of credit issued under the Revolving Credit Facility, unreimbursed amounts would be treated under the Credit Facilities as either additional term loans or as revolving loans.

The surety bonds listed in the table above relate primarily to construction and performance obligations and support for other obligations, including closure requirements of various energy projects when such projects cease operating. Were these bonds to be drawn upon, we would have a contractual obligation to indemnify the surety company. The bonds do not have stated expiration dates. Rather, we are released from the bonds as the underlying performance is completed.

We have certain contingent obligations related to our Senior Notes and Tax-Exempt Bonds. Holders may require us to repurchase their Senior Notes and Tax-Exempt Bonds if a fundamental change occurs. For specific criteria related to the redemption features of the Senior Notes and Tax-Exempt Bonds, see ~~Note 13. Consolidated Debt~~ ~~of this report and~~Item 8. Financial Statements And Supplementary Data — Note ~~15.~~16. Consolidated Debt of our ~~2019~~2020 Annual Report on Form 10-K.

We have issued or are party to guarantees and related contractual support obligations undertaken pursuant to agreements to construct and operate waste and energy facilities. For some projects, such performance guarantees include obligations to repay certain financial obligations if the project revenue is insufficient to do so, or to obtain or guarantee financing for a project. With

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)

respect to our businesses, we have issued guarantees to municipal clients and other parties that our subsidiaries will perform in accordance with contractual terms, including, where required, the payment of damages or other obligations. Additionally, damages payable under such guarantees for our ~~waste-to-energy~~WtE facilities could expose us to recourse liability on project debt. If we must perform under one or more of such guarantees, our liability for damages upon contract termination would be reduced by funds held in trust and proceeds from sales of the facilities securing the project debt and is presently not estimable. Depending upon the circumstances giving rise to such damages, the contractual terms of the applicable contracts, and the contract counterparty’s choice of remedy at the time a claim against a guarantee is made, the amounts owed pursuant to one or more of such guarantees could be greater than our then-available sources of funds. To date, we have not incurred material liabilities under such guarantees.

We have entered into certain guarantees of performance in connection with our recent divestiture activities. Under the terms of the arrangements, we guarantee performance should the guaranteed party fail to fulfill its obligations under the specified arrangements.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")

The following MD&A is intended to help the reader understand the results of operations and financial condition of Covanta for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021. The financial information as of ~~September 30, 2020~~March 31, 2021 should be read in conjunction with the financial statements for the year ended December 31, ~~2019~~2020 contained in our ~~2019~~2020 Annual Report on Form 10-K.

Factors Affecting Business Conditions and Financial Results

Impact of ~~COVID-19~~novel coronavirus ("COVID-19") on the ~~U.S.~~United States and the global economy

The COVID-19 pandemic has impacted, and is expected to continue to impact, our employees, our operations, our business and the economy. In early 2020, we began to see impacts from COVID-19 on the economy and commercial activity in the United States ("U.S."), resulting in reduced volumes and disruptions in waste markets. We have seen an increase in commercial activity and a stabilization of business conditions from the lows in Q2the second quarter of 2020, but the extent of potential impacts from COVID-19 in the future remains uncertain. We cannot predict the potential future impact of the COVID-19 pandemic with new variants of the virus circulating and delays in distributing and administering the vaccine, and it could materially and adversely affect our business, financial condition and results of operations in the future. ~~For a full discussion of risks associated with COVID-19 see~~ ~~Part II - Other Information - Item 1A. Risk Factors.~~

While a limited number of our employees have contracted COVID-19, we have followed recommended protocols and have thus far not experienced material disruptions to our operations as result of workforce availability issues. Depending upon the rate, extent, and location of future COVID-19 infection, more widespread infection of our employees could cause significant increases to operating ~~expense~~expenses at specific facilities, or ~~curtail~~the curtailment of operations at such facilities on a temporary basis.

Our ~~WtE~~waste to energy ("WtE") plants and material processing facilities provide a vital service to our municipal and commercial clients. As waste disposal facilities, they have been recognized as part of Critical Infrastructure by the Department of Homeland Security and as essential services by state and local governments. ~~While we remain a primary waste outlet for numerous municipalities and commercial customers, the downturn in economic activity has affected patterns and volumes of waste generation.~~ Residential waste represents the substantial majority of our contracted volumes, and ~~while we experienced~~there has been limited ~~reduction in~~impact on these volumes ~~during the early stages of the pandemic, residential volumes have returned~~ to ~~and in some areas exceeded, pre-pandemic levels.~~date. We also process commercial waste, including profiled waste, at many facilities, and while overall volumes of these materials for disposal in the market fell during the early stages of the pandemic, ~~which required us to internalize more waste~~ volumes ~~from our transfer station network as well as access third party replacement waste volumes at a lower revenue basis per ton. Volumes of commercial waste~~have generally have returned ~~closer~~ to pre-pandemic levels, and our average revenue per ton levels have returned as well. Three of our WtE facilities are currently permitted to accept Regulated Medical Waste (“RMW”), and while we have received some COVID-19 material to date, we have seen reductions in other types of RMW, and thus overall volumes of RMW have not materially changed as a result of the pandemic.

In addition, while our operations have experienced only limited disruption to date, we have incurred, and expect to continue to incur, additional costs associated with instituting measures to ensure employee safety, access to contractors needed for construction and maintenance activities, and delays of previously scheduled projects that have been placed on hold or rescheduled to later in the year.

Most of the construction activity at our equity method investment projects in the UK has continued during the pandemic, and we are working to mitigate any impacts. In England, construction activities are considered essential and so the Rookery and Newhurst sites, adhering to guidance set by Public Health England, have proceeded on schedule. The government in Scotland initially took a different approach, and construction at the Earls Gate site was suspended or curtailed through early June, but has now resumed.

In light of the uncertainty around the macroeconomic impacts of COVID-19, we implemented a program of expense reduction intended to mitigate the financial impacts to our business, with an initial goal of reducing 2020 costs by $15 to $30 million. This program includes several elements, among which are:

•~~Eliminating all non-essential travel and reducing discretionary spend;~~

•~~Enacting a hiring freeze for new corporate employees;~~

•Lowering compensation through a 50% reduction in payment of CEO's base salary amount, a 25% reduction in payment of executive leadership base salary amounts, and a 20% reduction in cash compensation for all corporate

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~~support employees through a combination of wage reductions and furloughs. These measures remained in place through mid-July 2020;~~

•~~Lowering the cash portion of board of directors' fees by 60% during the same time period as management reductions and furloughs;~~

•Focusing growth investments for the remainder of 2020 primarily on UK projects and the start-up of our first Total Ash Processing System ("TAPS") and remaining highly disciplined in making any additional discretionary investments; and

•~~Lowering the annualized dividend payout to $0.32 per share.~~

~~During the second and third quarters, these efforts resulted in cost savings of approximately $18 million, and we expect a full year impact of approximately $20 to $25 million.~~

As the COVID-19 pandemic is ongoing and the near term worldwide economic outlook remains uncertain, we cannot reasonably estimate the length or severity of this pandemic, or the extent to which the disruption may materially impact ~~the Company's~~our consolidated financial statements.

Commodity Markets -— Our quarterly results within an operating year may be affected substantially by movements in commodity markets relevant to our business, principally those relating to energy and metals. As noted above, the COVID-19 pandemic has had a dampening effect on prices in these markets. Such factors have caused, and may continue to cause, the portion of our energy revenue exposed to the market and/or our ~~recycled metals~~materials sales revenue to fluctuate to an extent that may materially affect our quarterly and annual financial results. ~~The commodity markets into which we sell energy and metals are currently at levels significantly below prior periods.~~

Energy Markets -— A portion of our energy revenue is sold under short term arrangements at prevailing market prices. Underlying market prices are affected by a variety of factors not within our control such as weather, natural gas supply/demand conditions (including seasonal storage), regional electricity transmission and system conditions, and global demand. We maintain a disciplined program to hedge our exposure to market price volatility, ~~(see~~see Item 1. Financial Statements -— Note ~~12.~~11. Derivative Instruments). As a result of our hedging program, we have only a limited amount of exposure to market price volatility in the near term, including for the ~~balance~~remainder of ~~2020.~~2021.

Metals Markets -— We sell recycled ferrous and non-ferrous metals under short term arrangements based on prevailing rates that are affected by regional and global demand for specific types of recycled metals. Demand for ferrous metals is not always consistent with demand for non-ferrous metals, or among different types of non-ferrous metals. In addition, recycled metal prices for both ferrous and non-ferrous materials are impacted directly and indirectly by tariff and trade actions both by the USU.S. as well as foreign countries. ~~Efforts in early 2020 by the US government to place tariffs on imported steel and aluminum have increased domestic demand for our products.~~

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The following are various published pricing indices relating to the U.S. economic drivers that are relevant to those aspects of our business where we have market exposure; however, there is not an exact correlation between our results and changes in these metrics.


		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020
Consumer Price Index (1)	Consumer Price Index (1)	1.4%		1.7%		Consumer Price Index (1)	2.6%		1.5%
PJM Pricing (Electricity) (2)	PJM Pricing (Electricity) (2)	$	18.77	$	22.06	PJM Pricing (Electricity) (2)	$	30.22	$	18.68
NE ISO Pricing (Electricity) (3)	NE ISO Pricing (Electricity) (3)	$	22.68	$	25.54	NE ISO Pricing (Electricity) (3)	$	50.24	$	22.23
Henry Hub Pricing (Natural Gas) (4)	Henry Hub Pricing (Natural Gas) (4)	$	2.00	$	2.38	Henry Hub Pricing (Natural Gas) (4)	$	3.56	$	1.91
#1 HMS Pricing (Ferrous Metals) (5)	#1 HMS Pricing (Ferrous Metals) (5)	$	221	$	229	#1 HMS Pricing (Ferrous Metals) (5)	$	367	$	236
Old Sheet & Old Cast (Non-Ferrous Metals) (6)	Old Sheet & Old Cast (Non-Ferrous Metals) (6)	$	0.39	$	0.41	Old Sheet & Old Cast (Non-Ferrous Metals) (6)	$	0.63	$	0.39

(1)Represents the year-over-year percent change in the Headline CPI number. The Consumer Price Index (CPI-U) data is provided by the U.S. Department of Labor Bureau of Labor Statistics.

(2)Average price per ~~MWh~~megawatt hours ("MWh") for ~~Q3 2020~~Q1 2021 and ~~Q3 2019.~~Q1 2020. Pricing for the PJM PSEG Zone is provided by the PJM ISO.

(3)Average price per MWh for ~~Q3 2020~~Q1 2021 and ~~Q3 2019.~~Q1 2020. Pricing for the Mass Hub Zone is provided by the NE ISO.

(4)Average price per MMBtu for ~~Q3 2020~~Q1 2021 and ~~Q3 2019.~~Q1 2020. The Henry Hub Pricing data is provided by the Natural Gas Weekly Update, ~~U.S.~~ Energy Information ~~Administration.~~Administration, Washington DC.

(5)Average price per gross ton for ~~Q3 2020~~Q1 2021 and ~~Q3 2019.~~Q1 2020. The #1 Heavy Melt Steel ("HMS") composite index ($/gross ton) price as published by American Metal Market.

(6)Average price per pound for ~~Q3 2020~~Q1 2021 and ~~Q3 2019.~~Q1 2020. Calculated using the high price of Old Cast Aluminum Scrap ($/lb.) as published by American Metal Market.

Seasonal -— Our quarterly operating results within the same fiscal year typically differ substantially due to seasonal factors, primarily as a result of the timing of scheduled plant maintenance. We 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 expense and receive less revenue until the boiler and/or turbine units resume operations. This scheduled maintenance usually occurs during periods of off-peak electric demand and/or lower waste volumes, which are our first, second and fourth fiscal quarters. The scheduled maintenance period in the first half of the year (primarily first quarter and early second quarter) is typically the most extensive, while the third quarter scheduled maintenance period is the least extensive. Given these factors, we normally experience our lowest operating income from our projects during the first half of each year.

During the first half of 2020, we experienced some modest delays in our normal scheduled maintenance activities due to COVID-19 related quarantines, travel restrictions and social distancing requirements. As a result, we expect our scheduled maintenance will be more heavily weighted towards the second half of the year than it has been historically.

Our operating results may also be affected by seasonal weather extremes during summers and winters. Increased demand for electricity and natural gas during unusually hot or cold periods may affect certain operating expenses and may trigger material price increases for a portion of the electricity and steam we sell.

Brexit Implications -— In March, 2017, the UK formally notified the EUEuropean Union ("EU") of its intention to leave the EU (so-called “Brexit”), and on January 31, 2020, the UK formally severed political ties ~~as part of~~and left the EU. The UK’s economic ties to the EU and ~~other~~its existing trading arrangements with both the EU and countries ~~(including~~outside the ~~US) are expected to remain~~EU remained in place pending ~~renegotiated~~ trade ~~agreements to be settled~~agreement renegotiations during a “standstill” transition period through December 31, 2020. The COVID-19 pandemic has created additional challenges in finalizing these trade agreements, but the UK reached a trade deal with the EU on December 24, 2020 ahead of the UK leaving the EU's single market and itcustoms union on December 31, 2020. The UK is ~~unclear at this time whether the parties will agree to extend the time period for negotiations.~~now negotiating and renegotiating its trade arrangements with non-EU countries. We have studied and consulted with local experts regarding the potential market and economic impacts of Brexit on the UK, with a particular focus on potential impacts to the waste and energy markets as they might affect our plans to expand our business with ~~GIG.~~Green Investment Group Limited ("GIG"). The government of the UK has shown no indication of an intention to rollback or reverse its policy support for environmental protection generally, the renewables market, or for WtE specifically. As such, while Brexit may have some impact on construction costs and schedule for both existing and potential new UK WtE projects, we do not believe that Brexit will materially impact the key market and economic drivers for investment in the combined pipeline of WtE projects we are pursuing jointly with GIG.

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Quarter Updates

Capital Allocation

Our key capital allocation activities for the three months ended ~~September 30, 2020~~March 31, 2021 included the following:

•$11 million declared in dividends to stockholders; and

•$42 million for growth ~~investments, including $3 million on TAPS.~~investments.

Strategic Review

~~For additional information~~

In October 2020, we announced the launch of a comprehensive strategic review of our assets, operations, growth priorities, and capital structure. This review is an opportunity to explore all options to enhance stockholder value, including assessing plans for each of our business lines and geographies. This review is broad in scope and will be completed in due course. The board of directors appointed Michael Ranger as President and Chief Executive Officer to lead this review and its subsequent execution.

In April 2021, the Company announced that, in connection with the strategic review, it is implementing an overhead cost rationalization program with a target to reduce costs by $30 million on a run rate basis by the ~~above transactions see~~ end of 2022. Initial efforts on this program have begun, including a voluntary early retirement program.

~~Item 1. Financial Statements — Note 3. New Business~~

The Company remains fully engaged in the strategic review process and ~~Asset Management.~~continues to analyze all of its assets and operations with a goal of unlocking value.

CONSOLIDATED RESULTS OF OPERATIONS

The following general discussions should be read in conjunction with the condensed consolidated financial statements, the notes to the condensed consolidated financial statements and other financial information appearing and referred to elsewhere in this report. We have one reportable segment which comprises our entire operating business.

The comparability of the information provided below with respect to our revenue, expense and certain other items for the periods presented was affected by several factors. As outlined in Item 1. Financial Statements — Note 1. Organization and Basis of Presentation~~and~~ ~~Note 3. New Business and Asset Management~~ in this quarterly report on Form 10-Q and in Item 8. Financial Statements And Supplementary Data — Note 1. Organization and Summary of Significant Accounting Policies and Note 3. New Business and Asset Management of our ~~2019~~2020 Annual Report on Form 10-K, our business development initiatives, contract transitions, and acquisitions resulted in various transactions, ~~that~~which are reflected in comparative revenue and expense.

Certain reclassifications of the prior years' amounts have been made to conform to the current year's presentation. The change in presentation did not affect our total operating revenue, total operating expense, nor operating loss. For further information on the reclassifications, see Item 1. Financial Statements — Note 1. Organization and Basis of Presentation. In addition, comparability of our results was affected by the COVID-19 pandemic as discussed above under Impact of COVID-19 on the U.S. and the global economy. These factors must be taken into account in developing meaningful comparisons between the periods compared below.

The following terms used within the Results of Operations discussion are defined as follows:

•“Organic growth”: reflects the performance of the business on a comparable period-over-period basis, excluding the impacts of transactions and contract transitions.

•“Transactions”: includes the impacts of acquisitions, divestitures, and the addition or loss of operating contracts.

•Contract “transitions”: includes the impact of the expiration of: (a) long-term major waste ~~and service~~ contracts, most typically representing the transition to a new contract structure, and (b) long-term energy contracts.

Certain amounts in our Consolidated Results of Operations may not total due to rounding.

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CONSOLIDATED RESULTS OF OPERATIONS — OPERATING INCOME


		Three Months Ended				Variance Increase			Three Months Ended				Variance Increase
		September 30,				(Decrease)			March 31,				(Decrease)
		2020		2019		2020 vs 2019			2021		2020		2021 vs 2020

		(In millions)							(In millions)
OPERATING REVENUE:	OPERATING REVENUE:							OPERATING REVENUE:
Waste and service revenue		$	366	$	353	$	13
Waste revenue								Waste revenue	$	343	$	340	$	3
Energy revenue	Energy revenue	93		81		12		Energy revenue	104		93		11
Recycled metals revenue		20		19		1
Other operating revenue		12		12		—
Materials sales revenue								Materials sales revenue	36		17		19
Services revenue								Services revenue	15		18		(3)
Total operating revenue	Total operating revenue	491		465		26		Total operating revenue	498		468		30
OPERATING EXPENSE:	OPERATING EXPENSE:							OPERATING EXPENSE:
Plant operating expense		349		325		24
Cost of operations								Cost of operations	398		371		27
Other operating expense, net	Other operating expense, net	11		10		1		Other operating expense, net	(4)		2		(6)
General and administrative expense	General and administrative expense	27		29		(2)		General and administrative expense	33		30		3
Depreciation and amortization expense	Depreciation and amortization expense	54		55		(1)		Depreciation and amortization expense	57		58		(1)
Impairment charges	Impairment charges	—		2		(2)		Impairment charges	—		19		(19)
Total operating expense	Total operating expense	441		421		20		Total operating expense	484		480		4
Operating income		$	50	$	44	$	6
Operating income (loss)								Operating income (loss)	$	14	$	(12)	$	26

Nine Months Ended Variance
Increase
September 30, (Decrease)
2020 2019 2020 vs 2019
(In millions)
OPERATING REVENUE:
Waste and service revenue $ 1,056 $ 1,039 $ 17
Energy revenue 264 247 17
Recycled metals revenue 57 61 (4)
Other operating revenue 36 38 (2)
Total operating revenue 1,413 1,385 28
OPERATING EXPENSE:
Plant operating expense 1,050 1,038 12
Other operating expense, net 37 43 (6)
General and administrative expense 83 90 (7)
Depreciation and amortization expense 168 165 3
Impairment charges 19 3 16
Total operating expense 1,357 1,339 18
Operating income $ 56 $ 46 $ 10

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Operating Revenue

Waste ~~and Service~~ Revenue

In millions: Three Months Ended Nine Months Ended Variance
September 30, September 30, Increase (Decrease)
2020 2019 2020 2019 Three Months Nine Months
WtE tip fees $ 168 $ 163 $ 486 $ 474 $ 5 $ 12
WtE service fees 118 114 350 348 4 2
Environmental services 36 36 100 105 — (5)
Municipal services 66 64 181 174 2 7
Other revenue 10 8 27 25 2 2
Intercompany (32) (34) (88) (87) 2 (1)
Total waste and service revenue $ 366 $ 353 $ 1,056 $ 1,039 $ 13 $ 17

~~Certain amounts may not total due to rounding.~~

WtE facilities - Tons (1) Three Months Ended Nine Months Ended Variance
(in millions): September 30, September 30, Increase (Decrease)
2020 2019 2020 2019 Three Months Nine Months
Tip fee - contracted 2.3 2.3 6.5 6.6 — (0.1)
Tip fee - uncontracted 0.5 0.5 1.6 1.4 — 0.2
Service fee 2.7 2.7 7.9 8.1 — (0.2)
Total tons 5.5 5.5 16.0 16.1 — (0.1)

~~(1) Includes solid tons only.~~


	Three Months Ended				Variance Increase
	March 31,				(Decrease)
(In millions)	2021		2020			2020 vs 2021
Tip fees	$	159	$	161		$	(2)
Service fees	123		119			4
Waste to energy processing	282		279			3
Materials processing and recycling	25		22			3
Waste handling and disposal	67		67			—
Intercompany	(30)		(28)			(2)
Total waste revenue	$	343	$	340		$	3

Certain amounts may not total due to rounding.

~~For the three month comparative period, waste and service revenue increased by $13 million, primarily driven by $12 million in organic growth.Within organic growth, WtE tip fee revenue increased by $4 million due to higher average revenue per ton, municipal services increased by $3 million, and WtE service fees increased by $2 million.~~

For the nine month comparative period, waste and service revenue increased by $17 million, driven by $18 million in organic growth and a $5 million increase related to waste contract transitions, partially offset by a $7 million decrease due to transactions. Within organic growth, WtE tip fee revenue increased by $15 million, with $11 million due to higher average revenue per ton and $4 million due to increased volume processed.~~Additionally within organic growth, municipal services increased by $4 million, offset by lower environmental services of $4 million.~~

~~Energy Revenue~~

(in millions): Three Months Ended September 30, Variance
Increase (Decrease)
2020 2019 2020 vs 2019
Revenue (2)
Volume (2) (3)
Revenue (2)
Volume (2) (3)
Revenue Volume
Energy Sales $ 63 $ 66 $ (3)
Capacity 10 9 1
Other Revenue (1)
20 6 14
Total energy $ 93 1.7 $ 81 1.7 $ 12 —

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(in millions): Nine Months Ended September 30, Variance
Increase (Decrease)
2020 2019 2020 vs 2019
Revenue (2) Volume (2) (3) Revenue (2) Volume (2) (3) Revenue Volume
Energy Sales $ 197 $ 205 $ (8)
Capacity 30 34 (4)
Other Revenue (1)
37 8 29
Total energy $ 264 4.8 $ 247 4.8 $ 17 —


WtE Tons (1)	Three Months Ended			Variance Increase
	March 31,			(Decrease)
(In millions)		2021	2020		2021 vs 2020
Tip fees - contracted		2.0	2.1		(0.1)
Tip fees - uncontracted		0.6	0.6		—
Service fees		2.5	2.6		(0.1)
Total tons		5.1	5.3		(0.2)

(1) ~~Primarily components~~Excludes liquid waste.

Certain amounts may not total due to rounding.

For the three month comparative period, total waste revenue increased by $3 million, driven by a $2 million increase in waste to energy processing and a $3 million increase in materials processing and recycling, partially offset by a $2 million decrease in revenue related to the elimination of intercompany transactions. Within waste to energy processing, tipping fees decreased by $2 million, as a $6 million increase in average revenue per ton was more than offset by an $8 million decrease in volume, and service fees increased by $4 million.

Energy Revenue


	Three Months Ended March 31,						Variance Increase (Decrease)
	2021			2020			2021 vs 2020
(In millions)	Revenue (3)		Volume (3)(4)	Revenue (3)		Volume (3)(4)	Revenue		Volume
Energy sales	$	76		$	77		$	(1)
Capacity	10			10			—
Wholesale load serving (1)	11			4			7
Renewable energy credits and other (2)	7			2			5
Total energy revenue	$	104	1.6	$	93	1.6	$	11	(0.1)

(1) Includes wholesale energy load serving revenue not included in Energy sales line, such as transmission and ancillaries.

(2) Primarily relates to all renewable energy credits in 2021 and renewable energy credits sold bundled with energy in 2020.

(3) Covanta share only. Represents the sale of electricity and steam based upon output delivered and capacity provided.

~~(3)~~(4) Steam converted to MWh at an assumed average rate of 11 klbs of steam / MWh.

Certain amounts may not total due to rounding.

For the three month comparative period, total energy revenue increased by ~~$12~~$11 million, primarily driven by ~~$12~~$7 million of ~~new wholesale load serving revenue.~~

~~For the nine month comparative period, energy revenue increased by $17 million, driven by $23 million of new~~ wholesale load serving revenue and ~~bundled REC revenue~~$5 million of ~~$7 million, partially offset by lower market prices of $7 million~~renewable energy credit and ~~lower WtE capacity sales of $4 million.~~other revenue.

~~Recycled Metals~~Materials Sales Revenue

Three Months Ended September 30,
Metal Revenue
(in millions) Tons Recovered
(in thousands)
Tons Sold
(in thousands) (1)
2020 2019 2020 2019 2020 2019
Ferrous Metal $ 12 $ 11 118 112 101 96
Non-Ferrous Metal 9 8 12 13 9 8
Total $ 20 $ 19

Nine Months Ended September 30,
Metal Revenue
(in millions) Tons Recovered
(in thousands)
Tons Sold
(in thousands) (1)
2020 2019 2020 2019 2020 2019
Ferrous Metal $ 32 $ 35 337 319 291 275
Non-Ferrous Metal 25 26 36 38 25 23
Total $ 57 $ 61


	Three Months Ended March 31,
	Materials Revenue (In millions)				Tons Recovered (In thousands)		Tons Sold (In thousands) (1)
	2021		2020		2021	2020	2021	2020
Ferrous	$	22	$	10	114	103	104	91
Non-ferrous	13		7		11	12	8	8

Total materials sales revenue	$	36	$	17

(1) Represents the portion of total volume from Covanta's share of revenue under applicable client revenue sharing arrangements.

Certain amounts may not total due to rounding.

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For the three month comparative period, ~~recycled metals~~total materials sales revenue increased by $1$19 million, driven ~~primarily~~ by ~~increased volume for ferrous and non-ferrous material.~~

~~For the nine month comparative period, recycled metals revenue decreased by $4~~a $15 million ~~driven primarily by lower~~increase in pricing for ferrous and non-ferrous ~~material.~~materials, and a $4 million increase due to higher tons sold.

~~Other Operating~~Services Revenue

~~Other Operating Revenue was flat~~Services revenue decreased by $3 million for the three ~~month comparative period and decreased by $2 million for the nine~~ month comparative period, primarily due to lower construction revenue.

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Operating Expense

~~Plant Operating Expense~~Cost of Operations

In millions: Three Months Ended Nine Months Ended Variance
September 30, September 30, Increase (Decrease)
2020 2019 2020 2019 Three Months Nine Months
Plant maintenance (1)
$ 66 $ 62 $ 238 $ 241 $ 4 $ (3)
All other 283 262 812 797 21 15
Plant operating expense $ 349 $ 325 $ 1,050 $ 1,038 $ 24 $ 12


	Three Months Ended				Variance Increase
	March 31,				(Decrease)
(In millions)	2021		2020			2020 vs 2021
Wages & benefits	$	125	$	122		$	3
Maintenance	105		92			13
Other operating costs	167		157			10
Cost of operations	$	398	$	371		$	27

~~(1) Plant maintenance costs include our internal maintenance team and non-facility employee costs for facility scheduled and unscheduled maintenance and repair expense.~~ Certain amounts may not total due to rounding.

~~Plant operating expenses~~Cost of operations increased by ~~$24~~$27 million related to higher costs in existing operations for the three month comparative ~~period,~~period. The increase within existing operations was primarily driven by ~~additional costs related to new wholesale load serving contracts of $9 million,~~ higher costs related to maintenance activity ~~in the quarter~~ of $4$13 million, additional costs related to wholesale load serving of $8 million and general cost escalation.

Plant operating expenses increased by $12 million for the nine month comparative period, with $20 million of higher costs in existing operations and $5 million of cost increases related to contract transitions partially offset by a decrease of $13 million as a result of divestitures. Within existing operations, wholesale load serving expense increased by $19 million, driving the overall increase.

Other Operating Expense, net

Other operating ~~expenses were flat for the three month comparable period and~~expense, net decreased by $6 million for the ~~nine~~three month comparative period, primarily ~~due to lower construction expense~~driven by a $3 million unrealized gain in foreign exchange on our UK investments and a $1 million gain on the sale of ~~$5 million and 2019 closure costs related to~~land at our ~~Warren facility which was shut down in March 2019.~~California biomass facilities.

General and Administrative Expense

General and administrative ~~expenses decreased~~expense increased by $2$3 million for the three month comparative period primarily due to ~~a decrease~~increases in compensation expense and ~~outside consulting as part of cost reductions in response to COVID-19.~~support costs.

~~General and administrative expenses decreased by $7 million for the nine month comparative period primarily due to a decrease in compensation as part of cost reductions in response to COVID-19.~~

Impairment Charges

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020, we recorded a non-cash impairment of $16 million, net of tax benefit of $3 million, which represents the carrying amount of our ~~CES~~Covanta Environmental Solutions ("CES") reporting unit in excess of its estimated fair value as of the interim goodwill impairment testing date of March 31, 2020.~~September 30, 2020~~.

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CONSOLIDATED RESULTS OF OPERATIONS — NON-OPERATING INCOME ITEMS

Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Other (Expense) Income:

Three Months Ended September 30, Nine Months Ended September 30, Variance
Increase (Decrease)
2020 2019 2020 2019 Three Months Nine Months
(In millions)
Interest expense $ (32) $ (36) $ (100) $ (108) $ 4 $ 8
Net gain on sale of business and investments — 1 9 49 (1) (40)
Loss on extinguishment of debt (12) — (12) — (12) (12)
Other (expense) income, net — (1) (2) 1 1 (3)
Total expense $ (44) $ (36) $ (105) $ (58) $ (8) $ (47)


	Three Months Ended March 31,						Variance Increase (Decrease)
			2021		2020			2021 vs 2020

		(In millions)
Interest expense			$	(31)	$	(34)		$	3
Net gain on sale of business and investments			—		9			(9)

Other expense			—		(1)			1
Total other expense			$	(31)	$	(26)		$	(5)

~~Interest expense for~~During the ~~nine~~three months ended ~~September 30, 2020 decreased by $8 million as compared to the prior year primarily due to lower average rates on our credit facilities.~~

~~During the nine months ended September 30,~~March 31, 2020, we recorded a $9 million gain in connection with the financial close of our Newhurst ~~Energy Recovery Facility~~ development project. ~~For additional information see~~ ~~Item 1. Financial Statements —Note 3. New Business and Asset Management~~.

During the nine months ended September 30, 2019, we recorded a $57 million gain related to the Rookery South Energy Recovery Facility development project and a $11 million loss related to the divestiture of our Springfield and Pittsfield WtE facilities.

During the three and nine months ended September 30, 2020, we recorded a $12 million loss on extinguishment of debt comprised of approximately $10 million related to the redemption of our 5.875% Senior Notes due 2024 and approximately $1 million related to the refinancing of our tax-exempt bonds. For additional information see ~~Item 1. Financial Statements — Note 13. Consolidated Debt~~.

Income Tax ~~(Expense)~~ Benefit:


		Three Months Ended September 30,						Nine Months Ended September 30,						Variance Increase (Decrease)					Three Months Ended March 31,								Variance Increase (Decrease)
		2020			2019			2020			2019			Three Months		Nine Months					2021			2020				2021 vs 2020

		(In millions, except percentages)																		(In millions, except percentages)
Income tax (expense) benefit		$	(3)		$	5		$	6		$	6		$	(8)	$	—
Income tax benefit																		Income tax benefit			$	18		$	5			$	13
Effective income tax rate	Effective income tax rate	52		%	(55)		%	11		%	48		%	N/A		N/A		Effective income tax rate			105		%	13		%		N/A

The difference between the effective tax rates for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, respectively, was primarily due to the effect of the overall increase in pre-tax income and ~~2019 was driven by differences~~changes in ~~the magnitude~~mix of ~~taxable gains~~earnings in ~~the periods, as well as the low level of pre-tax book income which can yield large fluctuations in the ETR on a year-over-year basis.~~certain jurisdictions.

For additional information, see Item 1. Financial Statements — Note 8.7. Income Taxes.

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~~CONSOLIDATED BALANCE SHEETS — GOODWILL~~

We performed an interim impairment test of our CES reporting unit via a quantitative valuation as of March 31, 2020. As a result, in the first quarter of 2020, we recorded an impairment of $16 million, net of tax benefit of $3 million, which represents the carrying amount of our CES reporting unit in excess of its estimated fair value as of the testing date.

~~For additional information please see~~ ~~Item 1. Financial Statements - Note 1. Organization and Summary of Significant Accounting Policies — Goodwill~~ ~~and~~ ~~Item 8. Financial Statements And Supplementary Data — Note 1. Organization and Summary of Significant Accounting Policies — Goodwill~~ ~~of our 2019 Annual Report on Form 10-K.~~

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Supplementary Financial Information — Adjusted EBITDA (Non-GAAP Discussion)

To supplement our results prepared in accordance with ~~GAAP,~~U.S. Generally Accepted Accounting Principles ("GAAP"), we use the measure of adjusted earnings before interest taxes depreciation and amortization ("Adjusted EBITDA"), which is a non-GAAP financial measure as defined by the ~~SEC.~~Securities and Exchange Commission ("SEC"). This non-GAAP financial measure is described below, and is not intended as a substitute ~~for~~ and should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. In addition, our use of non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. The presentation of Adjusted EBITDA is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of our business and those of possible acquisition and divestiture candidates, and highlight trends in the overall business.

We use Adjusted EBITDA to provide additional ways of viewing aspects of operations that, when viewed with the GAAP results provide a more complete understanding of our core business. As we define it, Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income including the effects of impairment losses, gains or losses on sales, dispositions or retirements of assets, adjustments to reflect the Adjusted EBITDA from our unconsolidated investments, adjustments to exclude significant unusual or non-recurring items that are not directly related to our operating performance plus adjustments to capital type expenses for our service fee facilities in line with our credit agreements. We adjust for these items in our Adjusted EBITDA as our management believes that these items would distort their ability to efficiently view and assess our core operating trends. As larger parts of our business are conducted through unconsolidated investments, we adjust EBITDA for our proportionate share of the entity's depreciation and amortization, interest expense, tax expense and other adjustments to exclude significant unusual or non-recurring items that are not directly related to the entity's operating performance, in order to improve comparability to the Adjusted EBITDA of our

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wholly owned entities. We do not have control, nor have any legal claim to the portion of our unconsolidated investees' revenues and expenses allocable to our joint venture partners. As we do not control, but do exercise significant influence, we account for these unconsolidated investments in accordance with the equity method of accounting. Net income (losses) from these investments are reflected within our consolidated statements of operations in Equity in net income from unconsolidated investments.

Adjusted EBITDA should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, reconciled for each such period to net income (loss) ~~income~~ and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP.

The following is a reconciliation of Net income (loss) to Adjusted EBITDA (in millions):

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		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020

		(Unaudited)										(Unaudited)
Net income (loss)	Net income (loss)	$	5	$	14	$	(40)	$	(2)	Net income (loss)		$	2	$	(32)
Depreciation and amortization expense	Depreciation and amortization expense	54		55		168		165		Depreciation and amortization expense		57		58
Interest expense	Interest expense	32		36		100		108		Interest expense		31		34
Income tax expense (benefit)		3		(5)		(6)		(6)
Income tax benefit										Income tax benefit		(18)		(5)
Impairment charges (a)	Impairment charges (a)	—		2		19		3		Impairment charges (a)		—		19
Net gain on sale of businesses and investments (b)	Net gain on sale of businesses and investments (b)	—		(1)		(9)		(49)		Net gain on sale of businesses and investments (b)		—		(9)
Loss on extinguishment of debt(c)		12		—		12		—
Loss on asset sales		—		1		2		3

Gain on sale of assets										Gain on sale of assets		(1)		—

Accretion expense	Accretion expense	1		1		2		2		Accretion expense		1		1
Business development and transaction costs	Business development and transaction costs	1		1		1		2		Business development and transaction costs		2		—
Severance and reorganization costs ~~(d)~~	Severance and reorganization costs ~~(d)~~	1		3		2		11		Severance and reorganization costs ~~(d)~~		4		—
Stock-based compensation expense	Stock-based compensation expense	5		5		19		20		Stock-based compensation expense		9		8
Adjustments to reflect Adjusted EBITDA from unconsolidated investments	Adjustments to reflect Adjusted EBITDA from unconsolidated investments	6		6		18		18		Adjustments to reflect Adjusted EBITDA from unconsolidated investments		7		6
Capital type expenditures at client owned facilities ~~(d)~~(c)	Capital type expenditures at client owned facilities ~~(d)~~(c)	5		8		24		28		Capital type expenditures at client owned facilities ~~(d)~~(c)		14		14
Other ~~(f)~~(d)	Other ~~(f)~~(d)	3		(1)		9		—		Other ~~(f)~~(d)		(2)		3
Adjusted EBITDA	Adjusted EBITDA	$	128	$	125	$	321	$	303	Adjusted EBITDA		$	106	$	97

(a)During the ~~nine~~three months ended ~~September 30,~~March 31, 2020, we recorded a $19 million non-cash impairment charge related to our ~~Covanta Environmental Solutions~~CES reporting unit.

(b)During the ~~nine~~three months ended ~~September 30,~~March 31, 2020, we recorded a $9 million gain related to the Newhurst Energy Recovery Facility development project.

(c)During the three and nine months ended September 30, 2020, we recorded a $12 million loss on extinguishment of debt comprised of approximately $10 million related to the redemption of our 5.875% Senior Notes due 2024 and approximately $1 million related to the refinancing of our tax-exempt bonds.

~~(d)~~During the nine months ended September 30, 2019, we recorded $11 million of costs related to our ongoing asset rationalization and portfolio optimization efforts, early retirement program, and certain organizational restructuring activities.

~~(e)~~Adjustment for capital equipment related expenditures at our service fee operated facilities which are capitalized at facilities that we own.

~~(f)~~(d)~~Includes certain other items that are added~~Added back under the definition of Adjusted EBITDA in Covanta Energy, LLC's credit agreement.

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The following is a reconciliation of cash flow provided by operating activities to Adjusted EBITDA (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	36	$	25	$	191	$	112	Net cash provided by operating activities		$	52	$	61
Capital type expenditures at client owned facilities (a)	Capital type expenditures at client owned facilities (a)	5		8		24		28		Capital type expenditures at client owned facilities (a)		14		14
Cash paid for interest	Cash paid for interest	56		64		104		123		Cash paid for interest		52		39
Cash paid for taxes, net		2		1		3		5
Cash paid for taxes										Cash paid for taxes		1		1
Equity in net income from unconsolidated investments	Equity in net income from unconsolidated investments	2		1		3		4		Equity in net income from unconsolidated investments		1		1
Adjustments to reflect Adjusted EBITDA from unconsolidated investments	Adjustments to reflect Adjusted EBITDA from unconsolidated investments	6		6		18		18		Adjustments to reflect Adjusted EBITDA from unconsolidated investments		7		6
Dividends from unconsolidated investments		—		—		(3)		(5)
Adjustment for working capital and other		21		20		(19)		18

Adjustments for working capital and other										Adjustments for working capital and other		(21)		(25)
Adjusted EBITDA	Adjusted EBITDA	$	128	$	125	$	321	$	303	Adjusted EBITDA		$	106	$	97

(a) See Adjusted EBITDA -— Note ~~(e)~~(c).

For additional discussion related to management’s use of non-GAAP measures, see Liquidity and Capital Resources — Supplementary Financial Information — Free Cash Flow (Non-GAAP Discussion) below.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are our unrestricted cash and cash equivalents, cash flow generated from our ongoing operations, and unutilized capacity under our ~~Revolving~~$1.3 billion senior secured credit facilities, consisting of a $400 million term loan ("Term Loan") and a $900 million revolving credit facility (the "Revolving Credit ~~Facility,~~Facility") (collectively referred to as the "Credit Facilities"), which we believe will allow us to meet our liquidity needs. Our business is capital intensive and our ability to successfully implement our strategy is, in part, dependent on the continued availability of capital on desirable terms. For additional information regarding our ~~credit facilities~~Credit Facilities and other debt, see Item 1. Financial Statements -— Note ~~13.~~12. Consolidated Debt.

We expect to utilize a combination of cash flows from operations, borrowings under our Revolving Credit Facility, and other financing sources, as necessary, to fund growth investments in our business.

In ~~2020,~~2021, we expect to generate net cash from operating activities ~~which alone may not~~that will be sufficient to meet ~~all of~~ our cash requirements including funding capital expenditures to maintain our existing assets and paying our ongoing dividends to stockholders. ~~We would utilize~~If there are any shortfalls, we have available liquidity under our Revolving Credit ~~Facility to cover any shortfall.~~Facility. For a full discussion of the factors impacting our ~~2020~~2021 business outlook, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -— Business Outlook of our ~~2019~~2020 Annual Report on Form ~~10-K~~10-K.

We generally intend to refinance our debt instruments prior to maturity with like-kind financing in the bank and/or debt capital markets in order to maintain a capital structure comprised primarily of long-term debt, which we believe appropriately matches the long-term nature of our assets and contracts.

The loan documentation governing the Credit Facilities contains various affirmative and negative covenants, as well as financial maintenance covenants (financial ratios), that limit our ability to engage in certain types of transactions. We do not anticipate our existing debt covenants to restrict our ability to meet future liquidity needs. For additional information regarding the covenants under our Credit Facilities, see Item 8. Financial Statements and Supplementary Data — Note ~~15.~~16. Consolidated Debt of our ~~2019~~2020 Annual Report on Form 10-K.

Our primary future cash requirements will be to fund capital expenditures to maintain our existing businesses, service our debt, invest in the growth of our business, and return capital to our stockholders. We believe that our liquidity position and ongoing cash flow from operations will be sufficient to finance these ~~requirements.~~

~~Recent Financing Activities~~

~~In August 2020, we entered into a loan agreement with~~requirements for at least the National Finance Authority ("NFA"), a component unit of the Business Finance Authority of New Hampshire, under which they agreed to issue $39.4 million 3.625% Resource Recovery Refunding Revenue Bonds Series 2020A, maturing on July 1, 2043, and $90 million 3.750% Resource Recovery Refunding Revenue Bonds Series 2020B, maturing on July 1, 2045 (collectively the "NFA Series 2020 Bonds"). For additional information see ~~Item 1. Financial Statements — Note 13. Consolidated Debt~~.

In August 2020, we issued $400 million aggregate principal amount of Senior Notes due 2030. We used the net proceeds along with cash on hand and direct borrowings under our Revolving Credit Facility to fund the optional redemption of all of our 5.875% Senior Notes due 2024 ("2024 Senior Notes") and to pay transaction fees and expenses and accrued interest. For additional information see ~~Item 1. Financial Statements — Note 13. Consolidated Debt.~~

In January 2020, in connection with our Zhao County agreement, we received proceeds of RMB 61 million ($9 million) through a loan agreement with a third party. We subsequently contributed the entire amount of the loan proceeds to the equity investment entity which owns the project in the form of a shareholder loan which is convertible to equity. See Item 1. Financial Statements — Note 3. New Business and Asset Management for further information.next twelve months.

Other Factors Affecting Liquidity

As of ~~September 30, 2020,~~March 31, 2021, we held unrestricted cash balances of ~~$34~~$56 million, of which ~~$24~~$37 million was held by international subsidiaries and not generally available for near-term liquidity in our domestic operations. In addition, as of ~~September 30, 2020,~~March 31, 2021, we held restricted cash balances of ~~$17~~$16 million. Restricted funds held in trust are generally amounts received and held by ~~third-party~~third-

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party trustees relating to certain projects we own. We generally do not control these accounts and these funds may be used only for specified purposes.

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As of ~~September 30, 2020,~~March 31, 2021, we had unutilized capacity under our Revolving Credit Facility of ~~$444~~$422 million and were in compliance with all of the covenants under our Credit Facilities. For additional information regarding the Credit Facilities, see Item 1. Financial Statements — Note ~~13.~~12. Consolidated Debt.

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, dividends declared to stockholders were $11 million or $0.08 per share. Such amounts were paid on ~~October~~April 9, ~~2020. Although not anticipated in the near term, we~~2021. We may repurchase outstanding shares from time to time, the amount and timing of future repurchases may vary depending on market conditions and the level of operating, financing and other investing activities. As of ~~September 30, 2020,~~March 31, 2021, the amount remaining under our currently authorized share repurchase program was $66 million.

~~Except as discussed in~~ ~~Item 1. Financial Statements — Note 13. Consolidated Debt, our projected contractual obligations remain consistent with amounts disclosed in our 2019 Annual Report on Form 10-K.~~

~~Impact of COVID-19 on our Liquidity~~

Although substantial uncertainties remain regarding the duration and future impacts of the COVID-19 pandemic, Covanta’s liquidity position has not been materially adversely impacted to date. Our WtE facilities are operating without material disruption and cash receipts to date remain generally consistent with past history. We continue to have access to over $400 million of unutilized capacity under our Revolving Credit Facility and are not currently aware of any impediments to drawing that capacity when and as needed.

We do not face any significant debt maturities until 2023 when our Credit Facilities mature. The majority of our capital structure (approximately 80%) is either fixed rate or swapped to fixed. Our floating exposures are ~~LIBOR~~the U.S. Dollar London Interbank Offered Rate ("USD LIBOR") based and will fluctuate with USD LIBOR, and current USD LIBOR rates are lower than those prevailing at the same time last year.

Further, we believe that we have significant covenant flexibility under the maintenance covenants of our Credit Facilities and expect to remain in full compliance with these covenants.

Due primarily to the uncertainty surrounding the COVID-19 pandemic, we announced that our Board of Directors lowered the annualized dividend payout to $0.32 per share beginning with the dividend declared in the second quarter of 2020. This represents an approximately two-thirds reduction and results in increased cash retention for other uses totaling $90 million on an annual basis. We believe this adjustment results in a more balanced capital allocation policy that continues to provide attractive returns to stockholders, while preserving liquidity in the near-term and accelerating balance sheet improvement over time.

~~For a full discussion of risks associated with COVID-19 see~~ ~~Part II - Other Information - Item 1A. Risk Factors.~~

Sources and Uses of Cash Flow for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$191~~$52 million, ~~an increase~~a decrease of ~~$79~~$9 million from the same period in the prior year due to ~~increased~~an increase in operating income ~~excluding the impairment charges~~ as discussed above ~~and net cash inflow from~~offset by a decrease in working ~~capital.~~capital driven by the timing of interest payments.

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$135~~$45 million, ~~an increase~~a decrease of ~~$34~~$6 million from the same period in the prior ~~year period.~~year. The ~~increase~~decrease in net investing outflow ~~was primarily due to lower proceeds from divestiture activities and increased spending in UK development projects in the current year as compared~~is related to the ~~same period~~decrease in ~~2019.~~our overall investment spending on our UK projects.

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$68~~$6 million, as compared to ~~$16~~$8 million used in financing activities from the same period in the prior ~~period. The increased cash use in financing activities in 2020 reflects lower net borrowings on long-term debt in 2020, partially~~year due to decreased dividend payments offset by ~~lower cash dividends paid to stockholders.~~decreased net revolver borrowings and loan proceeds in the current year.

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Supplemental Information on Unconsolidated Non-Recourse Project Debt

Below is a summary of our proportion of ~~gross~~ non-recourse project debt held by unconsolidated equity investments as of ~~September 30, 2020~~March 31, 2021 (in millions):


		Total Project Debt		Percentage Ownership	Proportionate Unconsolidated Project Debt		Project Stage		Total Project Debt		Percentage Ownership	Proportionate Unconsolidated Project Debt		Project Stage
Dublin WtE (Ireland) (1)		$	440	50%	$	220	Operational
Dublin (Ireland) (1)								Dublin (Ireland) (1)	$	426	50%	$	213	Operational
Earls Gate (UK) (2)	Earls Gate (UK) (2)	75		25%	19		Under construction	Earls Gate (UK) (2)	108		25%	27		Under construction
Rookery (UK) (3)	Rookery (UK) (3)	221		40%	88		Under construction	Rookery (UK) (3)	292		40%	117		Under construction
Zhao County WtE (China)(4)		—		26%	—		Under construction
Zhao County (China) (4)								Zhao County (China) (4)	42		26%	11		Under construction
Newhurst (UK)(5)	Newhurst (UK)(5)	78		25%	20		Under construction	Newhurst (UK) (5)	135		25%	34		Under construction
Protos (UK) (6)								Protos (UK) (6)	116		37.5%	44		Under construction
Total	Total	$	814		$	347		Total	$	1,119		$	446

(1)We have a 50% indirect ownership of Dublin WtE, through our 50/50 joint venture, ~~with GIG,~~ Covanta Europe Assets Ltd.

(2)We have a 25% indirect ownership of Earls Gate, through our 50/50 joint venture with GIG, Covanta Green Jersey Assets Ltd., which owns 50% of Earls Gate. The total estimated project cost is £210 million ($277 million);, of which £147 million ($194 million) iswill be financed through non-recourse project-based debt.

(3)We have a 40% indirect ownership of Rookery through our 50/50 joint venture with GIG, Covanta ~~Green UK Ltd.~~Green. The total estimated project cost is £457 million ($603 million);, of which £310 million ($409 million) iswill be financed through non-recourse project-based debt.

(4)We have 26% interest in Zhao County through our venture with Longking Energy Development Co. Ltd. The total estimated project cost is RMB 650 million ($93 million), of which RMB ~~455~~488 million ($6575 million) iswill be financed through non-recourse project debt. Covanta Energy Asia Pacific Holdings Ltd., a wholly owned Covanta entity, issued a parent guarantee for $15 million of the total debt. The fair market value of the guarantee liability is deemed to be immaterial.

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(5)We have a 25% indirect ownership of Newhurst through our 50/50 joint venture with GIG, Covanta ~~Green,~~Green. The total estimated project cost is £341 million ($422 million);, of which £251 million ($311 million) will be financed through non-recourse project-based debt.

(6)We have a 37.5% indirect ownership of Protos through our 50/50 joint venture with GIG, Covanta Green Protos Holding Ltd. The total estimated project cost is £400 million ($546 million), of which is£277 million ($378 million) will be financed through non-recourse project-based debt.

For additional information on our ~~unconsolidated~~ equity investments, see Item 1. Financial Statements —Note 6. Supplementary Information — Equity Method Investments and in our 2020 Annual Report on Form 10-K, see Item 8. Financial Statements And Supplementary Data — Note 3. New Business and Asset Management and Note ~~11.~~13. Equity Method Investments~~of our 2019 Annual Report on Form 10-K and~~ ~~Item 1. Financial Statements — Note 3. New Business and Asset Management.~~.

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Supplementary Financial Information — Free Cash Flow (Non-GAAP Discussion)

To supplement our results prepared in accordance with GAAP, we use the measure of Free Cash Flow, which is a non-GAAP ~~financial~~ measure as defined by the SEC. This non-GAAP financial measure is not intended as a substitute and should not be considered in isolation from measures of liquidity prepared in accordance with GAAP. In addition, our use of Free Cash Flow may be different from similarly identified non-GAAP measures used by other companies, limiting its usefulness for comparison purposes. The presentation of Free Cash Flow is intended to enhance the usefulness of our financial information by providing ~~measures~~a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business.

We use the non-GAAP financial measure of Free Cash Flow as criteria of liquidity and performance-based components of employee compensation. Free Cash Flow is defined as cash flow provided by operating activities, plus changes in operating restricted funds, less expenditures for software implementation and maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available for acquisitions, invest in construction of new projects, make principal payments on debt, or return capital to our stockholders through dividends and/or stock repurchases.

For additional discussion related to management’s use of non-GAAP ~~financial~~ measures, see Consolidated Results of Operations — Supplementary Financial Information — Adjusted EBITDA (Non-GAAP Discussion) above.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ reconciled for each such period to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP.

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The following is a reconciliation of Net cash provided by operating activities to Free Cash Flow (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019					2021		2020

		(Unaudited)										(Unaudited)
Net cash provided by operating activities	Net cash provided by operating activities	$	36	$	25	$	191	$	112	Net cash provided by operating activities			$	52	$	61
Add: Changes in restricted funds - operating (a)	Add: Changes in restricted funds - operating (a)	2		13		—		18		Add: Changes in restricted funds - operating (a)			—		(2)
Less: Maintenance capital expenditures (b)		(35)		(16)		(107)		(81)
Less: Software implementation expenditures (b)										Less: Software implementation expenditures (b)			—		(1)
Less: Maintenance capital expenditures (c)										Less: Maintenance capital expenditures (c)			(33)		(40)
Free Cash Flow	Free Cash Flow	$	3	$	22	$	84	$	49	Free Cash Flow			$	19	$	18

(a) Adjustment for the impact of the adoption of ASU 2016-18 effective January 1, 2018. As a result of adoption, the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted funds are eliminated in arriving at net cash, cash equivalents and restricted funds provided by operating activities.	(a) Adjustment for the impact of the adoption of ASU 2016-18 effective January 1, 2018. As a result of adoption, the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted funds are eliminated in arriving at net cash, cash equivalents and restricted funds provided by operating activities.									(a) Adjustment for the impact of the adoption of ASU 2016-18 effective January 1, 2018. As a result of adoption, the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted funds are eliminated in arriving at net cash, cash equivalents and restricted funds provided by operating activities.

(b) Due to the adoption of ASU 2018-15 effective January 1, 2020, these expenditures, previously included in Maintenance capital expenditures above and Purchases of property, plant and equipment on our consolidated statement of cash flows, are now included in Other, net in the investing section of our consolidated statement of cash flows.										(b) Due to the adoption of ASU 2018-15 effective January 1, 2020, these expenditures, previously included in Maintenance capital expenditures above and Purchases of property, plant and equipment on our consolidated statement of cash flows, are now included in Other, net in the investing section of our consolidated statement of cash flows.

(b) Purchases of property, plant and equipment are also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures. The following table provides the components of total purchases of property, plant and equipment:
(c) Purchases of property, plant and equipment are also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures. The following table provides the components of total purchases of property, plant and equipment:										(c) Purchases of property, plant and equipment are also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures. The following table provides the components of total purchases of property, plant and equipment:

		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019					2021		2020
Maintenance capital expenditures	Maintenance capital expenditures	$	(35)	$	(16)	$	(107)	$	(81)	Maintenance capital expenditures			$	(33)	$	(40)
Net maintenance capital expenditures paid but incurred in prior periods	Net maintenance capital expenditures paid but incurred in prior periods	—		(1)		2		(7)		Net maintenance capital expenditures paid but incurred in prior periods			(9)		5

Total ash processing system	Total ash processing system	(3)		(3)		(11)		(4)		Total ash processing system			(1)		(8)
Capital expenditures associated with the New York City MTS contract		—		(2)		—		(19)
Capital expenditures associated with organic growth initiatives		—		(6)		(1)		(10)
Total capital expenditures associated with growth investments (c)		(3)		(11)		(12)		(33)

Total capital expenditures associated with growth investments (d)										Total capital expenditures associated with growth investments (d)			(1)		(8)

Total purchases of property, plant and equipment	Total purchases of property, plant and equipment	$	(38)	$	(28)	$	(117)	$	(121)	Total purchases of property, plant and equipment			$	(43)	$	(43)

(c) Growth investments include investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures, net of third party loans collateralized by unconsolidated project equity.
(d) Total growth investments represents investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures, net of third party loans collateralized by unconsolidated project equity.										(d) Total growth investments represents investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures, net of third party loans collateralized by unconsolidated project equity.

Capital expenditures associated with growth investments	Capital expenditures associated with growth investments	$	(3)	$	(11)	$	(12)	$	(33)	Capital expenditures associated with growth investments			$	(1)	$	(8)
UK business development projects	UK business development projects	—		—		(9)		(1)		UK business development projects			—		(1)
Investment in equity affiliate	Investment in equity affiliate	(1)		(1)		(11)		(9)		Investment in equity affiliate			(1)		(10)
Asset and business acquisitions, net of cash acquired		—		—		—		2
Less: third party project loan proceeds collateralized by project equity		—		—		9		—

Less: Third party project loan proceeds collateralized by project equity										Less: Third party project loan proceeds collateralized by project equity			—		9
Total growth investments	Total growth investments	$	(4)	$	(12)	$	(23)	$	(41)	Total growth investments			$	(2)	$	(10)

Recent Accounting Pronouncements

See Item 1. Financial Statements — Note 2. Recent Accounting Pronouncements for information related to new accounting pronouncements.

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Discussion of Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in accordance with GAAP, we are required to use judgment in making estimates and assumptions that affect the amounts reported in our financial statements and related notes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Many of our critical accounting policies are subject to significant judgments and uncertainties, which could result in materially different results under different conditions and assumptions. Future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment. Management believes there have been no material changes during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to the items discussed in Discussion of Critical Accounting Policies in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ofin our ~~2019~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2020 .

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our subsidiaries are party to financial instruments that are subject to market risks arising from changes in commodity prices, interest rates, foreign currency exchange rates, and derivative instruments. Our use of derivative instruments is very limited and we do not enter into derivative instruments for trading purposes.

There were no material changes during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to the items discussed in Item 7A. Quantitative and Qualitative Disclosures About Market Risk ofin our ~~2019~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2020 .

Item 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Covanta’s disclosure controls and procedures, as required by Rule 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of ~~September 30, 2020.~~March 31, 2021. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Our Chief Executive Officer and Chief Financial Officer have concluded that, based on their reviews and as further discussed below, our disclosure controls and procedures are ~~not~~ effective to provide such reasonable assurance.

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must consider the benefits of controls relative to their costs. Inherent limitations within a control system include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. While the design of any system of controls is to provide reasonable assurance of the effectiveness of disclosure controls, such design is also based in part upon certain assumptions about the likelihood of future events, and such assumptions, while reasonable, may not take into account all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be prevented or detected.

~~Information Technology General Controls~~

~~As previously disclosed in~~ ~~Item 9A. Controls and Procedures~~ of our 2019 Annual Report on Form 10-K, our management concluded that there was a material weakness in internal controls over financial reporting related to information technology general controls in the areas of user access and application change management over certain systems that support our financial reporting processes. Certain business process controls that are dependent on the affected information technology general controls were also deemed ineffective because they could have been adversely impacted.

During the nine months ended September 30, 2020, we implemented specific changes in process and enhanced controls to address this material weakness, consistent with management’s comprehensive plan of remediation described in our previous disclosure in our 2019 Annual Report on Form 10-K. Additional improvements are still being implemented as part of such plan.

~~Table of Contents~~

~~During the nine months ended September 30, 2020, we completed the following steps to remediate the material weakness discussed above:~~

•~~Hired information technology managers for all previously vacant positions and assigned these individuals specific internal control ownership and oversight;~~

•~~Trained all information technology employees on information technology general controls and policies;~~

•~~Centralized the formerly disparate processes to manage and control user accounts within our financial reporting systems;~~

•~~Trained information technology managers on the process for providing, modifying and terminating application access;~~

•~~Implemented monitoring procedures to ensure that the management of user accounts is performed in compliance with internal control requirements;~~

•~~Initiated the design of an enhanced process to periodically reassess the propriety of users’ access to our financial reporting systems;~~

•~~Designed and implemented change management and access management controls for financially relevant applications;~~

•~~Trained business application owners on information technology change management procedures and controls; and~~

•~~Documented and communicated with business application owners information technology change management procedures.~~

~~In addition to these completed steps, management is continuing to progress on other components of its comprehensive plan of remediation, including:~~

•~~Moving all applications to Single Sign On (SSO) so as to better control termination of access;~~

•~~Implementing enhanced risk assessment procedures related to changes in the information technology systems environment; and~~

•~~Implementing new and enhancing existing logging and reporting capabilities so that changes to applications can be recorded and monitored for propriety.~~

We believe that these actions, together with additional actions that might be identified and determined necessary as management’s remediation efforts continue to progress, will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that information technology general controls are operating effectively.

Changes in Internal Control over Financial Reporting

Effective June 29, 2020, Covanta commenced a managed tax services arrangement with a third party service provider, under which a majority of the US employees in our tax department transitioned from Covanta to the third party service provider.

~~Except as noted in the preceding paragraph and above under~~ ~~Information Technology General Controls, there~~There have not been any changes in our system of internal control over financial reporting during the quarter ended ~~September 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

As a result of the COVID-19 pandemic, beginning March 16, 2020, all corporate and field administrative employees transitioned to working primarily from home, while essential plant employees continue to report to their facilities. Effective September 14, 2020, we reopened our offices in Morristown, NJ, in a limited capacity, but most employees continue to work primarily from home due to pandemic safety precautions. Despite these changes to the working environment, we have not experienced any material impact to our internal controls over financial reporting during the quarter ended ~~September 30, 2020.~~March 31, 2021. We will continue to monitor the effects of the COVID-19 pandemic on our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

On September 4, 2020, the Commonwealth of Pennsylvania, Department of Environmental Protection (“PADEP”) issued a proposed consent assessment of civil penalties to Covanta Plymouth Renewable Energy, LLC (“Covanta Plymouth”) relating to alleged excess emissions from the Conshohocken, PA facility. Covanta Plymouth is in discussions with PADEP to resolve the matter. We do not expect any outcome will have a material adverse effect on our consolidated financial position or results of operations.

For additional information regarding legal proceedings, see Item 1. Financial Statements — Note ~~15.~~14. Commitments and Contingencies, which information is incorporated herein by reference.

Item 1A. RISK FACTORS

Our activities were impacted by the COVID-19 pandemic, and there remains a risk that our activities could be further impacted in the future as the COVID-19 pandemic and its effects remain dynamic, whether those effects are local, nationwide or global. Matters outside our control may prevent us from executing on our existing operations or projects in development, limit travel of Company representatives, adversely affect the health and welfare of Company personnel or prevent important vendors and contractors from performing normal and contracted activities.

The current COVID-19 pandemic significantly impacted the national and global economy and commodity and financial markets, and while some markets have stabilized, others remain under pressure and there continues to be a risk that the situation may again get worse before it gets better. The full extent and near- and long-impact of the COVID-19 pandemic continues to be unknown and to date has included extreme volatility in financial markets, a significant slowdown in economic activity, extreme volatility in commodity prices (including energy and metals prices) and the potential for a global recession. The response to COVID-19 has led to significant restrictions on travel, temporary business closures, quarantines, global stock market volatility and a general reduction in consumer and construction activity globally. Matters outside our control have affected our business and operations and may begin or may continue to: prevent us from executing on our existing operations and projects in development; limit travel of Company representatives, including between our corporate headquarters in New Jersey and between and among our facilities across the United States and in other countries; adversely affect the health and welfare of our personnel; or prevent important vendors and contractors from performing normal and contracted activities, including waste-to-energy operations, maintenance and construction activities. If significant portions of our workforce were to be unable to work effectively, including because of illness, quarantines, government actions, travel restrictions, facility closures, social distancing requirements or other restrictions in connection with the COVID-19 pandemic, our operations could be materially impacted. It is possible that the continued spread of COVID-19 could also further cause disruption in our supply chains, adversely affect our business partners, delay our construction activities or cause other unpredictable events.

The spread of COVID-19 throughout the United States, Canada and the United Kingdom has forced and may continue to force many of our employees to work from home and may result in employees missing work if they or a member of their family contract COVID-19, which could harm our operations and negatively impact our financial condition. We may also be prevented from receiving goods or services from contractors. Decisions beyond our control, such as canceled events, restricted travel, quarantines, barriers to entry or other factors may affect our ability to operate our waste-to-energy plants and delay ongoing or planned construction projects in the United Kingdom, financing activities, and other needs that would normally be accomplished without such limitations. The extent to which the COVID-19 outbreak may, in the future, impact our operations, our business and the economy is highly uncertain; however, the dramatic downturn in commercial activity in the markets in which we operate may reduce the amount of waste available for delivery to our waste-to-energy facilities, adversely impacting revenues from waste processing, metals recovery, and power generation. We cannot predict the future impact of the COVID-19 pandemic, but it may materially and adversely affect our business, financial condition and results of operations.

~~A long-term decline in our stock price may result in impairment charges.~~

As a result of the COVID-19 pandemic and the resulting impact to the economy, global stock prices have dropped considerably, including the Company's stock price. If there is an extended period of lower stock market valuations or an extended global recession which adversely impacts revenues generated from our waste processing facilities, we may be required to perform additional impairment tests for our goodwill, intangible assets and long-lived assets, which may result in material impairment charges during the remainder of 2020.

~~Table of Contents~~

~~Except as noted in the preceding paragraphs, there~~There have been no material changes during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to the risk factors discussed in Item 1A. Risk Factors in our ~~2019~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2020 .

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~During the quarter ended March 31, 2021, the Company withheld 555,088 shares of restricted stock, as permitted by the applicable equity award agreements, to satisfy employee tax withholding requirements related to the vesting of restricted stock awards.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

(a) None.

(b) Not applicable.

Item 6. EXHIBITS


Exhibit Number						Description
~~Articles~~ of ~~Incorporation and By-Laws.~~Exhibits
~~4.1†~~						Seventh Supplemental Indenture dated as of August 25, 2020 between Covanta Holding Corporation and Wells Fargo Bank, National Association, as trustee (including the Form of Note) (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 25, 2020.

~~Material Contracts.~~
10 .1 †						~~Form of Covanta Holding Corporation Non-Qualified Stock Option Agreement for Employees and Officers~~ ~~(incorporated herein by reference to Exhibit 10.1of Covanta Holding Corporations Current Report on Form 8-K dated October 29, 2020 and filed with the SEC on October 29, 2020).~~


Other.
~~31.1~~31.1*						Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 by the Chief Executive Officer.
~~31.2~~31.2*						Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 by the Chief Financial Officer.
3232*						Certification of periodic financial report pursuant to Section 906 of Sarbanes-Oxley Act of 2002 by the Chief Executive Officer and Chief Financial Officer.
~~Exhibit 101.INS:~~101.INS**						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
~~Exhibit 101.SCH:~~101.SCH**						XBRL Taxonomy Extension Schema
~~Exhibit 101.CAL:~~101.CAL**						XBRL Taxonomy Extension Calculation Linkbase
~~Exhibit 101.DEF:~~101.DEF**						XBRL Taxonomy Extension Definition Linkbase
~~Exhibit 101.LAB:~~101.LAB**						XBRL Taxonomy Extension Labels Linkbase
~~Exhibit 101.PRE:~~101.PRE**						XBRL Taxonomy Extension Presentation Linkbase
104						Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith.

~~† Not filed herewith, but incorporated herein by reference.~~

* ~~Management contract or compensatory plan or arrangement.~~*Filed electronically with this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			COVANTA HOLDING CORPORATION (Registrant)

			By:			/S/s/ BRADFORD J. HELGESON
						Bradford J. Helgeson
						Executive Vice President and Chief Financial Officer

			By:			/S/s/ JOSEPH J. SCHANTZ II
						Joseph J. Schantz II
						Vice President and Chief Accounting Officer

Date: ~~October~~April 30, ~~2020~~2021

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	Total Facility Commitment		Expiring	Direct Borrowings		Outstanding Letters of Credit		Unutilized Capacity
Revolving Credit Facility	$	900	2023	$	240	$	216	$	444


In millions:	Three Months Ended				Nine Months Ended				Variance
	September 30,				September 30,				Increase (Decrease)
	2020		2019		2020		2019		Three Months		Nine Months
WtE tip fees	$	168	$	163	$	486	$	474	$	5	$	12
WtE service fees	118		114		350		348		4		2
Environmental services	36		36		100		105		—		(5)
Municipal services	66		64		181		174		2		7
Other revenue	10		8		27		25		2		2
Intercompany	(32)		(34)		(88)		(87)		2		(1)
Total waste and service revenue	$	366	$	353	$	1,056	$	1,039	$	13	$	17


WtE facilities - Tons (1)	Three Months Ended		Nine Months Ended		Variance
(in millions):	September 30,		September 30,		Increase (Decrease)
	2020	2019	2020	2019	Three Months	Nine Months
Tip fee - contracted	2.3	2.3	6.5	6.6	—	(0.1)
Tip fee - uncontracted	0.5	0.5	1.6	1.4	—	0.2
Service fee	2.7	2.7	7.9	8.1	—	(0.2)
Total tons	5.5	5.5	16.0	16.1	—	(0.1)


	Three Months Ended September 30,
	Metal Revenue (in millions)				Tons Recovered (in thousands)		Tons Sold (in thousands) (1)
	2020		2019		2020	2019	2020	2019
Ferrous Metal	$	12	$	11	118	112	101	96
Non-Ferrous Metal	9		8		12	13	9	8
Total	$	20	$	19