Covanta Holding (CVA) 8-K Covanta Holding Corporation Reports Third Quarter Results

Exhibit 99.1

COVANTA HOLDING CORPORATION REPORTS
THIRD QUARTER RESULTS

Diluted Earnings Per Share of $0.21
Adjusted EBITDA of $147 million at Covanta Energy
Company Reaffirms Full Year 2006 Guidance

FAIRFIELD, NJ, October 30, 2006- Covanta Holding Corporation (NYSE:CVA) (“Covanta” or the “Company”) reported financial results today for the three and nine months ended September 30, 2006. The Company is presenting comparative financial results on an as reported basis for the third quarter and a pro forma basis for the year-to-date. The pro forma information was prepared as if the acquisition of Covanta ARC Holdings Inc. was consummated on January 1, 2005. The Company believes that such presentation will assist in assessing Covanta’s performance.

Third Quarter Results

For the three months ended September 30, 2006, total operating revenues were $311 million versus $301 million in the prior year. Net income was $31 million, or $0.21 per diluted share which compares with 2005 third quarter net income of $37 million, or $0.26 per diluted share. The results for the three months ended September 30, 2005 included an after-tax unrealized gain of $6.8 million or $0.05 per diluted share associated with the warrants received as part of the reorganization of a former subsidiary.

On higher revenue and solid operating performance at Covanta Energy Corporation (“Covanta Energy”), the Company’s principal subsidiary, adjusted EBITDA grew 2% to $147 million. Covanta Energy’s domestic waste and energy operating revenues grew 5% to $280 million driven primarily by higher energy rates, contractual service fee escalation and favorable scrap metal pricing. International revenues of $28 million decreased approximately $4 million compared to the prior year primarily due to the sale of a small facility in China during the second quarter of 2006.

YTD 2006 As Reported Results versus YTD 2005 Pro Forma Results

For the nine months ended September 30, 2006, total operating revenues rose 5% to $951 million while net income was $94 million. Diluted earnings per share increased 64% to $0.64 driven primarily by strong operating performance and a lower effective tax rate. Covanta Energy’s adjusted EBITDA grew 13% to $424 million resulting from higher revenues, strong operating performance and the successful execution of cost reduction initiatives.

“We are very pleased with our continued strong operating performance”, said Anthony Orlando, President and Chief Executive Officer. “Covanta’s relentless focus on client service and operational excellence throughout the organization underpins our commitment to drive long-term shareowner value. Indicative of the outstanding service Covanta provides, our Lancaster County Pennsylvania client recently awarded us a Service Agreement extension,” Mr. Orlando continued. “That is a credit to our dedicated employees and it buoys my optimism that Covanta’s demonstrated operational expertise will enable us to capitalize on strategic opportunities to expand our business domestically and abroad.”

2006 Guidance Reaffirmed

The Company is reaffirming its full year 2006 guidance on the following key metrics:

     n Covanta Energy adjusted EBITDA in the range of $535 to $545 million,

     n Covanta Energy free cash flow of approximately $235 million, and

     n Diluted earnings per share of approximately $0.75.

Conference Call Information

Covanta will host a conference call at 8:30 am (Eastern) on Tuesday, October 31, 2006 to discuss its results for the three and nine months ended September 30, 2006. Prepared remarks will be followed by a question-and-answer session. To participate, please dial(800) 946-0783approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial(719) 457-2658. The conference call will also be web cast live on the Investor Relations section of the Covanta website atwww.covantaholding.com.

A replay of the conference call will be available from 11:00 am (Eastern) on Tuesday, October 31, 2006 through midnight (Eastern) Tuesday, November 7, 2006. To access the replay, please dial(888) 203-1112or(719) 457-0820and use the replay pass code: 3089448. The web cast will also be archived onwww.covantaholding.com.

Non-GAAP Measures

The information presented herein and in the exhibits attached includes non-GAAP financial measures, as defined by the Securities and Exchange Commission, relating to adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) and free cash flow. These measures may be different from non-GAAP measures used by other companies. The presentation of such non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with United States generally accepted accounting principles (“GAAP”). These non-GAAP financial measures should be read in conjunction with Covanta’s financial information reported in accordance with GAAP. Covanta uses these measures to provide additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting Covanta’s business. Reconciliations to the most directly comparable GAAP measure and management’s reasons for presenting such information are set forth in the exhibits to this release. Included among the exhibits are calculations of Covanta Energy’s adjusted EBITDA and calculations of Free Cash Flow, measurements that are not in accordance with GAAP. Adjusted EBITDA is defined as, for any period, EBITDA plus additional items

deducted from, or added to, net income, as defined in Covanta Energy’s financing arrangements. Covanta believes this financial measure is helpful in assessing the overall performance of its business, and is helpful in highlighting trends in its overall business because the items excluded in calculating adjusted EBITDA have little or no bearing on its day-to-day operating performance. Adjusted EBITDA is also a significant criterion of performance-based components of employee compensation. Free Cash Flow is defined as, for any period; cash flow provided by operating activities less purchase of property, plant and equipment. Free Cash Flow is not a measurement of financial performance under GAAP and is used by management as an alternative measure of cash flow available for the repayment of debt and for investment in strategic opportunities.

About Covanta

Covanta is a New York Stock Exchange listed company engaging in waste disposal, energy services and specialty insurance through its subsidiaries. Covanta’s subsidiary, Covanta Energy, is an internationally recognized owner and operator of waste-to-energy and power generation projects. Covanta Energy’s waste-to-energy facilities convert municipal solid waste into renewable energy for numerous communities, predominantly in the United States.

NOTE: Covanta’s charter contains restrictions that prohibit parties from acquiring 5% or more of Covanta’s common stock without its prior consent.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission, all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta and its subsidiaries, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, “proposed”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, those factors, risks and uncertainties that are described in Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2005, and in Item 1A of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and in other securities filings by Covanta or its subsidiaries.

Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Covanta’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

Contact:
Gavin Bell
Covanta Holding Corporation

973.882.7107
Attachments

Exhibit 1

Covanta Holding Corporation
Condensed Consolidated Statements of Operations

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(Unaudited, in thousands, except per share amounts)
Operating revenues
Waste and service revenues	$	203,103		$	194,176		$	607,973		$	436,624
Electricity and steam sales		104,019			103,316			329,610			225,541
Other operating revenues		3,993			3,998			13,024			13,236
Total operating revenues		311,115			301,490			950,607			675,401
Operating expenses
Plant operating expenses		161,611			152,984			522,330			394,183
Depreciation and amortization expense		47,752			44,580			142,987			78,111
Net interest expense on project debt		14,722			16,988			46,013			36,700
Other operating expenses		(2,959	)		2,378			1,251			7,736
General and administrative expenses		18,346			18,586			54,177			45,389
Restructuring charges		—			—			—			2,655
Acquisition-related charges		—			983			—			2,963
Total operating expenses		239,472			236,499			766,758			567,737
Operating income		71,643			64,991			183,849			107,664
Other income (expense)
Investment income		2,483			1,657			7,801			3,530
Interest expense		(26,968	)		(30,701	)		(87,265	)		(59,053	)
Loss on extinguishment of debt		—			—			(2,342	)		—
Unrealized gain on derivative instruments, unexercised ACL warrants		—			10,578			—			14,796
Total other expenses		(24,485	)		(18,466	)		(81,806	)		(40,727	)
Income before income tax expense, minority interests and equity in net income from unconsolidated investments		47,158			46,525			102,043			66,937
Income tax expense		(18,870	)		(16,391	)		(29,795	)		(24,008	)
Minority interests		(1,982	)		(2,172	)		(4,861	)		(9,311	)
Equity in net income from unconsolidated investments		4,945			9,439			26,460			20,003
Net Income	$	31,251		$	37,401		$	93,847		$	53,621
Earnings Per Share:
Basic	$	0.21		$	0.27		$	0.65		$	0.46
Weighted Average Shares		146,418			140,086			145,393			116,181
Diluted	$	0.21		$	0.26		$	0.64		$	0.44
Weighted Average Shares		147,266			145,737			146,710			121,881

Exhibit 2

Covanta Holding Corporation
Condensed Consolidated Pro Forma Statements of Operations

	Nine Months Ended
	September 30,
	2006			2005
	As Reported			Pro Forma
	(Unaudited, in thousands, except per share amounts)
Operating revenues
Waste and service revenues	$	607,973		$	587,276
Electricity and steam sales		329,610			305,201
Other operating revenues		13,024			13,236
Total operating revenues		950,607			905,713
Operating expenses
Plant operating expenses		522,330			500,936
Depreciation and amortization expense		142,987			136,966
Net interest expense on project debt		46,013			51,766
Other operating expenses		1,251			8,255
General and administrative expenses		54,177			55,123
Total operating expenses		766,758			753,046
Operating income		183,849			152,667
Other income (expense)
Investment income		7,801			4,755
Interest expense		(87,265	)		(88,810	)
Loss on extinguishment of debt		(2,342	)		—
Unrealized gain on derivative instruments, unexercised ACL warrants		—			14,796
Total other expenses		(81,806	)		(69,259	)
Income before income tax expense, minority interests and equity in net income from unconsolidated investments		102,043			83,408
Income tax expense		(29,795	)		(37,533	)
Minority interests		(4,861	)		(9,367	)
Equity in net income from unconsolidated investments		26,460			20,003
Net Income	$	93,847		$	56,511
Earnings Per Share:
Basic	$	0.65		$	0.40
Weighted Average Shares		145,393			140,207
Diluted	$	0.64		$	0.39
Weighted Average Shares		146,710			145,907

Covanta has prepared condensed consolidated pro forma statements of operations for the nine months ended September 30, 2005 as if the acquisition of Ref-Fuel had been consummated on January 1, 2005.

Exhibit 3

Covanta Holding Corporation
Reconciliation of Net Income and Pro Forma Net Income to Adjusted EBITDA

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005			Full Year
	As Reported			As Reported			As Reported			Pro Forma			Estimated 2006
	(Unaudited, in thousands)
Net Income — Covanta Holding Corporation	$	31,251		$	37,401		$	93,847		$	56,511
Less: Net Income — Other Services		427			10,662			1,476			9,106
Net Income — Covanta Energy Corporation		30,824			26,739			92,371			47,405		$104,000 - $112,000
Depreciation and amortization expense		47,726			44,551			142,926			136,882		191,000
Debt service:
Net interest expense on project debt		14,722			16,988			46,013			51,766
Interest expense		26,968			30,701			87,265			88,810
Loss on extinguishment of debt		—			—			2,342			—
Investment income		(1,771	)		(1,462	)		(5,905	)		(4,348	)
Subtotal debt service		39,919			46,227			129,715			136,228		170,000
Income tax expense		18,406			15,897			28,556			30,479		32,000 - 36,000
Other Adjustments:
Change in unbilled service receivables(A)		4,360			3,577			12,622			8,671
Energy contract levelization(A)		1,138			976			3,312			1,698
Non-cash compensation(A)		1,498			584			4,866			1,640
Acquisition-related charges(A)		—			983			—			—
Other non-cash operating expenses(A)		1,228			2,344			4,485			3,046
Subtotal other adjustments		8,224			8,464			25,285			15,055		31,000 - 29,000
Minority interests		2,262			2,447			5,498			9,851		7,000
Total adjustments		116,537			117,586			331,980			328,495
Adjusted EBITDA — Covanta Energy Corporation(B)	$	147,361		$	144,325		$	424,351		$	375,900		$535,000 - $545,000

(A)	These items represent amounts that are non-cash in nature.
(B)	Adjusted EBITDA is provided for Covanta Energy Corporation (“Covanta Energy”) as defined in Covanta Energy’s financing arrangements. The corporate debt resides at Covanta Energy and, therefore, Covanta Holding Corporation (“Covanta”) provides adjusted EBITDA at that level and not at the Covanta level which includes the insurance business.
	Covanta uses adjusted EBITDA to assess its operating performance. Covanta believes this financial measure is helpful in assessing the overall performance of its business, and is helpful in highlighting trends in its overall business because the items excluded in calculating adjusted EBITDA have little or no bearing on its day-to-day operating performance. Adjusted EBITDA is also a significant criterion of performance-based components of employee compensation.
	Adjusted EBITDA is an unaudited, non-GAAP financial measure, and is provided for information purposes only. Certain items are included in the table above that are not measured under United States generally accepted accounting principles (“GAAP”) and are not intended to supplant other information provided in accordance with GAAP. Furthermore, these measures may not be comparable to those used by other companies. The following information should be read in conjunction with the unaudited condensed consolidated financial statements of Covanta and the notes thereto as filed in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
	Adjusted EBITDA, set forth above, is reconciled to net income, which is the most directly comparable GAAP performance measure.
	Covanta has prepared adjusted EBITDA for the nine months ended September 30, 2005 on a Pro Forma basis, as if the acquisition of Ref-Fuel had been consummated on January 1, 2005.

Exhibit 4

Covanta Energy Corporation
Reconciliation of Free Cash Flow to Cash Flow Provided by Operating Activities

	Three Months Ended			Nine Months Ended			Full Year
	September 30, 2006			September 30, 2006			Estimated 2006
	(Unaudited, in thousands)
Cash Flow Provided by Operating Activities	$	118,721		$	234,826		$	285,000
Less: Purchase of Property, Plant and Equipment (A)		(8,896	)		(35,684	)		(50,000	)
Free Cash Flow (B)	$	109,825		$	199,142		$	235,000

(A)	Purchase of Property, Plant and Equipment is also referred to as capital expenditures.
(B)	Free Cash Flow is provided for Covanta Energy. The corporate debt resides at Covanta Energy and, therefore, Covanta provides Free Cash Flow at that level and not at the Covanta level which includes the insurance business.

Covanta uses Free Cash Flow as a liquidity measure. It believes this financial measure is important in analyzing its liquidity to service its capital structure and for strategic opportunities.

Free Cash Flow is an unaudited, non-GAAP financial measure, and is provided for information purposes only. Certain items are included in the table above that are not measured under GAAP and are not intended to supplant other information provided in accordance with GAAP. Furthermore, these measures may not be comparable to those used by other companies. The following information should be read in conjunction with the unaudited condensed consolidated financial statements of Covanta and the notes thereto as filed in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

Free Cash Flow means, for any period, Cash Flow Provided by Operating Activities less Purchase of Property, Plant and Equipment. Free Cash Flow is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or any other measures of performance derived in accordance with GAAP. Free Cash Flow is reconciled to cash flow provided by operating activities, the most directly comparable GAAP operating measure.

Exhibit 5

Covanta Holding Corporation
Components of Diluted Earnings Per Share

	Nine Months Ended
	September 30, 2006
	(Unaudited)
Philippine Tax Ruling — Cumulative Adjustment (A)	$	0.05
APB 23 - Cumulative Adjustment (B)		0.07
All other		0.52
EPS — Diluted	$	0.64

(A)

Covanta is a minority shareholder in the “Quezon Project Company” that owns the Quezon Power, Inc. (“Quezon”) facility in the Philippines. In June 2006, the Philippine tax authorities issued a ruling clarifying the deductibility of unrealized foreign exchange losses to the Quezon Project Company. As a result, the Quezon Project Company recorded a cumulative deferred income tax benefit in the quarter ended June 30, 2006 which increased Covanta’s second quarter equity in net income from unconsolidated investments by $7 million or 5 cents per diluted share. The impact of this ruling, on periods subsequent to the quarter ended June 30, 2006, will be based on the fluctuations in the value of the Philippine peso versus the US dollar in those respective periods. During the quarter ended September 30, 2006 the Quezon Project Company recorded a deferred income tax expense as a result of the strengthening of the Philippine peso versus the US dollar which decreased Covanta’s equity in net income from unconsolidated investments by $1.4 million. The $1.4 million is included in the caption “All other” in the table above to determine that component of diluted earnings per share.

(B)

During the quarter ended June 30, 2006, consistent with its strategy to pursue international investment opportunities, Covanta adopted the permanent reinvestment exception under Accounting Principles Board Opinion No. 23, “Accounting for Income Taxes — Special Areas” (“APB 23”) with respect to the earnings of its foreign subsidiaries. Pursuant to this election, Covanta now considers foreign earnings to be permanently reinvested and, as a result, Covanta recorded a catch-up, cumulative adjustment during the quarter ended June 30, 2006 of $10 million or 7 cents per diluted share to reflect the reversal of the deferred taxes that were accrued over the last two years prior to the election under APB 23.

Exhibit 6

Covanta Energy Corporation
Effect of Philippine Tax Ruling — Cumulative Adjustment as Component of Adjusted EBITDA

	Nine Months Ended
	September 30, 2006
	(Unaudited, in thousands)
Philippine Tax Ruling — Cumulative Adjustment (A)	$	7,037
All other		417,314
Adjusted EBITDA — Covanta Energy Corporation (B)	$	424,351

(A)

Covanta is a minority shareholder in the “Quezon Project Company” that owns the Quezon facility in the Philippines. In June 2006, the Philippine tax authorities issued a ruling clarifying the deductibility of unrealized foreign exchange losses to the Quezon Project Company. As a result, the Quezon Project Company recorded a cumulative deferred income tax benefit in the quarter ended June 30, 2006 which increased Covanta’s second quarter equity in net income from unconsolidated investments by $7 million or 5 cents per diluted share. The impact of this ruling, on periods subsequent to the quarter ended June 30, 2006, will be based on the fluctuations in the value of the Philippine peso versus the US dollar in those respective periods. During the quarter ended September 30, 2006 the Quezon Project Company recorded a deferred income tax expense as a result of the strengthening of the Philippine peso versus the US dollar which decreased Covanta’s equity in net income from unconsolidated investments by $1.4 million. The $1.4 million is included in the caption “All other” in the table above.

(B)

Adjusted EBITDA is provided for Covanta Energy as defined in Covanta Energy’s financing arrangements. The corporate debt resides at Covanta Energy and, therefore, Covanta Holding provides adjusted EBITDA at that level and not at the Covanta level which includes the insurance business.

Covanta uses adjusted EBITDA to assess its operating performance. Covanta believes this financial measure is helpful in assessing the overall performance of its business, and is helpful in highlighting trends in its overall business because the items excluded in calculating adjusted EBITDA have little or no bearing on its day-to-day operating performance. Adjusted EBITDA is also a significant criterion of performance-based components of employee compensation.

Adjusted EBITDA is an unaudited, non-GAAP financial measure, and is provided for information purposes only. Certain items are included in the table above that are not measured under GAAP and are not intended to supplant other information provided in accordance with GAAP. Furthermore, these measures may not be comparable to those used by other companies. The following information should be read in conjunction with the unaudited condensed consolidated financial statements of Covanta and the notes thereto as filed in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

Adjusted EBITDA, set forth above, is reconciled to net income, which is the most directly comparable GAAP performance measure.