Covanta Holding (CVA) 8-K Results of Operations and Financial Condition

Exhibit 99.1

COVANTA HOLDING CORPORATION REPORTS
2008 FOURTH QUARTER AND FULL-YEAR RESULTS;
ESTABLISHES 2009 GUIDANCE

FAIRFIELD, NJ, February 26, 2009– Covanta Holding Corporation (NYSE:CVA) (“Covanta” or the “Company”) reported financial results today for the three and twelve months ended December 31, 2008. Diluted earnings per share was $0.19 in the fourth quarter of 2008 and $0.90 for the full year. Each of those numbers was substantially impacted by adjustments for various non-operating events detailed in Exhibit 7 attached hereto. Excluding those non-operating events, 2008 diluted earnings per share were $0.22 for the fourth quarter and $0.95 for the full year as compared to $0.25 and $0.81 on a comparable basis in 2007. Cash Flow Provided by Operating Activities (“Operating Cash Flow”) was $403 million for the year compared to $364 million the prior year.

Fourth Quarter Results

For the three months ended December 31, 2008, consolidated operating revenues grew 5% to $414 million, up from $395 million in the prior year comparative period. The increase was driven by higher energy sales primarily at our biomass facilities, revenue from domestic acquisitions and increased electricity sales at two facilities located in India.

Operating Cash Flow was $135 million in the fourth quarter, compared to $119 million in 2007. Operating Cash Flow is generally affected by the same factors that impact Adjusted EBITDA, except that the negative impacts at our Indian facilities did not materially affect cash. Furthermore, our lower interest expense and improvements in our working capital contributed to the increase in Operating Cash Flow.

Adjusted EBITDA was $138 million, compared to $153 million for 2007. This $15 million decline was driven primarily by two items: incremental expenditures of $7 million during the quarter to pursue various growth initiatives and a $6 million decrease in revenues attributed to declining recycled metals prices and lower tip fees, with those revenue declines largely flowing through to Adjusted EBITDA. In addition, the benefits relating to our Stanislaus client’s decision to repay project debt ahead of schedule and the final insurance recoveries at our SEMASS facility were more than offset by the negative impact of timing issues related to fuel oil price fluctuations at our two facilities in India and adverse foreign exchange rates.

Net income was $30 million for the quarter compared to $72 million in the prior year comparative period. The majority of the decline relates to a higher tax rate in 2008 compared to the tax benefit in the comparative quarter in 2007, both relating to Grantor Trust activity and NOL valuation allowance, as detailed on the attached Exhibit 7. The remaining reduction

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in net income for 2008 from 2007 is due to the same events that negatively affected Adjusted EBITDA, partially offset by lower interest expense.

Full-Year 2008 Results

For the twelve months ended December 31, 2008, consolidated operating revenues rose 16% to $1.66 billion, up from $1.43 billion in 2007. The Company’s domestic segment operating revenues grew by 10% to $1.37 billion for the year, driven primarily by higher waste and energy revenues at our existing energy from waste facilities, and revenue from domestic acquisitions. International revenues grew by 58% to $280 million, primarily due to increased electricity sales at the two facilities in India.

Net income grew 7% to $139 million, up from $131 million in 2007. Operating Cash Flow was $403 million for the year compared to $364 million the prior year. Adjusted EBITDA was $574 million compared to $549 million the prior year.

The Company used almost all of its Operating Cash Flow to invest in the business and to retire $195 million in debt. Capital expenditures were $88 million, as detailed on Exhibit 6 attached hereto. The Company invested $73 million in acquisitions and $19 million in equity interests.

Anthony Orlando, President and Chief Executive Officer of Covanta, stated that “In this difficult economic climate, we are fortunate that the vast majority of our revenues are derived from contracts to provide essential services. During 2008, waste processed at our Energy-from-Waste facilities hit record levels. This in turn enabled us to finish the year with operating cash flow and Adjusted EBITDA within the guidance ranges that we set at the beginning of that year. In light of the economic turmoil, I’m pleased with our performance.”

“Looking ahead, the slow economy will put downward pressure on our key financial metrics, but we are in an excellent position to manage these difficult times. Our balance sheet is solid, we continue to generate substantial free cash flow and we are actively pursuing a good pipeline of growth opportunities. From a legislative perspective, the stimulus bill that became law last week extended production tax credits for renewable energy, including new Energy-from-Waste projects. Hopefully this momentum will carry over to a renewable energy bill that could spur tremendous growth for our industry,” added Mr. Orlando.

2009 Guidance

The Company is establishing guidance for 2009 for the following key metrics:

- Operating Cash Flow in the range of $325 million to $375 million;

- Adjusted EBITDA of $500 million to $540 million; and

- Diluted earnings per share of $0.75 to $0.90.

Conference Call Information

Covanta will host a conference call at 8:30 am (Eastern) on Friday, February 27, 2009 to discuss its results for the three and twelve months ended December 31, 2008. Prepared remarks will be followed by a question-and-answer session. To participate, please dial 888-396-2298 approximately 10 minutes prior to the scheduled start of the call and when prompted, enter the passcode 44443438. If you are calling from outside of the United States, please dial 617-847-8708 and use the same passcode. The conference call will also be web

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cast live on the Investor Relations section of the Covanta website atwww.covantaholding.com.

A replay of the conference call will be available from 11:30 am (Eastern) on Friday, February 27, 2009 through midnight (Eastern) on Friday, March 6, 2009. To access the replay, please dial 888-286-8010 or, from outside of the United States, please dial 617-801-6888 and use the replay passcode: 67460754. The webcast will also be archived onwww.covantaholding.com and available for MP3 download.

Additional Information

The Company’s annual report on Form 10-K will be filed with the Securities and Exchange Commission on March 2, 2009. Printed copies of this document are available free of charge. Requests can be submitted atinvestors.covantaholding.com or by calling 1-800- 882-4122, Ext. 7001.

About Covanta

Covanta Holding Corporation (NYSE:CVA), is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy. Covanta’s 38 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta’s modern Energy-from-Waste facilities safely and securely convert approximately 16 million tons of waste into more than 8 million megawatt hours of clean renewable electricity and create 10 billion pounds of steam that are sold to a variety of industries. For more information, visitwww.covantaholding.com.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time.  Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta 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,” 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

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and uncertainties that are described in periodic securities filings by Covanta with the SEC.  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.

Contacts:

Marisa F. Jacobs, Esq.
Vice President, Investor Relations and Corporate Communications
1-973-882-4196

Vera Carley
Director, Media Relations and Corporate Communications
1-973-882-2439

Attachments

Covanta Holding Corporation	Exhibit 1
Consolidated Statements of Income

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
	(In thousands, except per share amounts)
Operating revenues
Waste and service revenues	$	235,911		$	235,357		$	934,527		$	864,396
Electricity and steam sales		159,898			134,712			660,616			498,877
Other operating revenues		18,011			25,319			69,110			69,814
Total operating revenues		413,820			395,388			1,664,253			1,433,087
Operating expenses
Plant operating expenses(A)		256,089			212,118			999,674			801,560
Depreciation and amortization expense		47,344			49,951			199,488			196,970
Net interest expense on project debt		12,452			13,587			53,734			54,579
General and administrative expenses		26,445			22,025			97,016			82,729
Insurance recoveries, net of write-down of assets(A)		(8,325	)		(4,925	)		(8,325	)		—
Other operating expenses		19,227			23,141			66,701			60,639
Total operating expenses		353,232			315,897			1,408,288			1,196,477
Operating income		60,588			79,491			255,965			236,610
Other income (expense)
Investment income		1,505			1,612			5,717			10,578
Interest expense		(10,928	)		(15,108	)		(46,804	)		(67,104	)
Loss on extinguishment of debt(B)		—			—			—			(32,071	)
Total other expenses		(9,423	)		(13,496	)		(41,087	)		(88,597	)
Income before income tax expense, minority interests and equity in net income from unconsolidated investments		51,165			65,995			214,878			148,013
Income tax expense		(26,744	)		3,374			(92,227	)		(31,040	)
Minority interests		299			(3,112	)		(6,961	)		(8,656	)
Equity in net income from unconsolidated investments		5,228			6,043			23,583			22,196
Net Income	$	29,948		$	72,300		$	139,273		$	130,513
Earnings Per Share:
Basic	$	0.20		$	0.47		$	0.91		$	0.85
Weighted Average Shares		153,417			153,096			153,345			152,653
Diluted	$	0.19		$	0.47		$	0.90		$	0.85
Weighted Average Shares		154,673			154,444			154,732			153,997

(A)	On March 31, 2007, the SEMASS energy-from-waste facility experienced a fire in the front-end receiving portion of the facility. Damage was extensive to this portion of the facility and operations at the facility were suspended completely for approximately 20 days. As a result of this loss, Covanta recorded an asset impairment of $17.3 million, pre-tax, during the year ended December 31, 2007, which represented the net book value of the damaged assets. Insurance recoveries are recorded as a reduction to the loss related to the write-down of assets where such recoveries relate to repair and reconstruction costs, or as a reduction to operating expenses where such recoveries relate to other costs or business interruption losses.
	During the year ended December 31, 2007, Covanta recorded insurance recoveries and received cash proceeds of $2.7 million related to clean-up costs. During the years ended 2007 and 2008, Covanta recorded insurance recoveries of $2.0 million and $5.2 million, respectively, related to business interruption losses, for which cash proceeds of $7.2 million were received during the year ended December 31, 2008. During the years ended 2007 and 2008, Covanta recorded insurance recoveries of $17.3 million and $8.3 million, respectively, related to repair and reconstruction costs, for which cash proceeds of $9.4 million and $16.2 million were received during the years ended December 31, 2007 and 2008, respectively.
(B)	During the first quarter of 2007, Covanta completed public offerings of common stock and 1.00% Senior Convertible Debentures, and Covanta Energy closed on new credit facilities. In addition, Covanta Energy completed tender offers for outstanding notes previously issued by its intermediate subsidiaries. As a result of the recapitalization, Covanta recognized a loss on extinguishment of debt of approximately $32.1 million, pre-tax.

Exhibit 2

Covanta Holding Corporation
Consolidated Statements of Cash Flows

	For the Years Ended December 31,
	2008				2007			2006
		(Unaudited, in thousands)
OPERATING ACTIVITIES:
Net income	$	139,273		$	130,513		$	105,789
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		199,488			196,970			193,217
Revenue contract levelization		(586	)		(555	)		3,419
Amortization of long-term debt deferred financing costs		3,684			3,841			3,858
Amortization of debt premium and discount		(10,707	)		(14,857	)		(22,506	)
Loss on extinguishment of debt		—			32,071			6,795
Provision for doubtful accounts		1,839			1,184			2,251
Stock-based compensation expense		14,750			13,448			6,887
Equity in net income from unconsolidated investments		(23,583	)		(22,196	)		(28,636	)
Dividends from unconsolidated investments		19,459			24,250			19,375
Minority interests		6,961			8,656			6,610
Deferred income taxes		70,826			5,869			20,908
Other, net		3,809			(1,801	)		6,872
Change in restricted funds held in trust		29,481			5,493			7,790
Change in operating assets and liabilities, net of effects of acquisitions:
Receivables		4,138			(36,084	)		(8,577	)
Unbilled service receivables		14,020			19,403			17,294
Accounts payable and accrued expenses		(38,450	)		22,880			2,351
Unpaid losses and loss adjustment expenses		(3,235	)		(4,984	)		(8,848	)
Other, net		(28,560	)		(20,510	)		(15,860	)
Net cash provided by operating activities		402,607			363,591			318,989
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired		(73,393	)		(110,465	)		—
Proceeds from the sale of investment securities		20,295			15,057			10,615
Purchase of investment securities		(18,577	)		(622	)		(774	)
Acquisition of non-controlling interest in subsidiary		—			—			(27,500	)
Purchase of equity interest		(18,503	)		(11,199	)		—
Purchase of property, plant and equipment		(87,920	)		(85,748	)		(54,267	)
Property insurance proceeds		16,215			9,441			—
Acquisition of land use rights		(16,727	)		—			—
Loans issued to client community to fund certain facility improvements		(8,233	)		—			—
Other, net		(2,465	)		3,626			5,022
Net cash used in investing activities		(189,308	)		(179,910	)		(66,904	)
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net		—			135,757			—
Proceeds from rights offerings, net		—			—			20,498
Proceeds from the exercise of options for common stock, net		262			812			1,126
Proceeds from borrowings on long-term debt		—			949,907			97,619
Financings of insurance premiums, net		1,381			7,927			—
Proceeds from borrowings on project debt		8,278			3,506			6,868
Proceeds from borrowings on revolving credit facility		—			30,000			—
Principal payments on long-term debt		(6,877	)		(1,181,130	)		(140,638	)
Principal payments on project debt		(187,800	)		(164,167	)		(151,095	)
Payments of borrowings on revolving credit facility		—			(30,000	)		—
Payments of long-term debt deferred financing costs		—			(18,324	)		(2,129	)
Payments of tender premiums on debt extinguishment		—			(33,016	)		(1,952	)
Increase in holding company restricted funds		—			6,660			—
Decrease in restricted funds held in trust		21,575			31,432			31,583
Distributions to minority partners		(7,061	)		(7,699	)		(9,263	)
Other, net		—			—			(37	)
Net cash used in financing activities		(170,242	)		(268,335	)		(147,420	)
Effect of exchange rate changes on cash and cash equivalents		(70	)		618			221
Net increase (decrease) in cash and cash equivalents		42,987			(84,036	)		104,886
Cash and cash equivalents at beginning of period		149,406			233,442			128,556
Cash and cash equivalents at end of period	$	192,393		$	149,406		$	233,442
Cash Paid for Interest and Income Taxes:
Interest	$	114,207		$	146,677		$	205,807
Income taxes	$	22,979		$	24,122		$	17,398

Exhibit 3

Covanta Holding Corporation
Consolidated Balance Sheets

	As of December 31,
	2008			2007
	(Unaudited, in thousands, except per share amounts)
ASSETS
Current:
Cash and cash equivalents	$	192,393		$	149,406
Marketable securities available for sale		300			2,495
Restricted funds held in trust		175,093			187,951
Receivables (less allowances of $3,437 and $4,353)		243,791			252,114
Unbilled service receivables		49,468			59,232
Deferred income taxes		—			29,873
Prepaid expenses and other current assets		123,214			113,927
Total Current Assets		784,259			794,998
Property, plant and equipment, net		2,530,035			2,620,507
Investments in fixed maturities at market (cost: $26,620 and $26,338, respectively)		26,737			26,260
Restricted funds held in trust		149,818			191,913
Unbilled service receivables		44,298			56,685
Waste, service and energy contracts, net		223,397			268,353
Other intangible assets, net		83,331			88,954
Goodwill		195,617			127,027
Investments in investees and joint ventures		102,953			81,248
Other assets		139,544			112,554
Total Assets	$	4,279,989		$	4,368,499
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current:
Current portion of long-term debt	$	6,922		$	6,898
Current portion of project debt		198,034			195,625
Accounts payable		24,470			29,916
Deferred revenue		15,202			25,114
Accrued expenses and other current liabilities		215,046			234,000
Total Current Liabilities		459,674			491,553
Long-term debt		1,005,965			1,012,534
Project debt		880,336			1,084,650
Deferred income taxes		466,468			440,723
Waste and service contracts		114,532			130,464
Other liabilities		165,881			141,740
Total Liabilities		3,092,856			3,301,664
Commitments and Contingencies
Minority Interests		35,014			40,773
Stockholders’ Equity:
Preferred stock ($0.10 par value; authorized 10,000 shares; none issued and outstanding)		—			—
Common stock ($0.10 par value; authorized 250,000 shares; issued 154,797 and 154,281 shares; outstanding 154,280 and 153,922 shares)		15,480			15,428
Additional paid-in capital		776,544			765,287
Accumulated other comprehensive (loss) income		(8,205	)		16,304
Accumulated earnings		368,352			229,079
Treasury stock, at par		(52	)		(36	)
Total Stockholders’ Equity		1,152,119			1,026,062
Total Liabilities and Stockholders’ Equity	$	4,279,989		$	4,368,499

Covanta Holding Corporation	Exhibit 4
Reconciliation of Net Income to Adjusted EBITDA

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,						Full Year
	2008			2007			2008			2007			Estimated 2009
	(Unaudited, in thousands)
Net Income	$	29,948		$	72,300		$	139,273		$	130,513			$117,000 - $141,000
Depreciation and amortization expense		47,344			49,951			199,488			196,970			188,000 - 194,000
Debt service:
Net interest expense on project debt		12,452			13,587			53,734			54,579
Interest expense		10,928			15,108			46,804			67,104
Investment income		(1,505	)		(1,612	)		(5,717	)		(10,578	)
Subtotal debt service		21,875			27,083			94,821			111,105			84,000 - 79,000
Income tax expense		26,744			(3,374	)		92,227			31,040			76,000-80,000
Other adjustments:(A)
Change in unbilled service receivables		7,319			4,125			14,020			19,403
Non-cash compensation expense		3,364			3,322			14,750			13,448
Other		1,773			1,218			12,249			5,975
Subtotal other adjustments		12,456			8,665			41,019			38,826			29,000 - 38,000
Insurance recoveries, net of write-down of assets(B)		—			(4,925	)		—			—
Loss on extinguishment of debt(C)		—			—			—			32,071
Minority interests		(299	)		3,112			6,961			8,656			6,000-8,000
Total adjustments		108,120			80,512			434,516			418,668
Adjusted EBITDA(D)	$	138,068		$	152,812		$	573,789		$	549,181			$500,000 - $540,000

(A)	These items represent amounts that are non-cash in nature.
(B)	On March 31, 2007, the SEMASS energy-from-waste facility experienced a fire in the front-end receiving portion of the facility. Damage was extensive to this portion of the facility and operations at the facility were suspended completely for approximately 20 days. As a result of this loss, Covanta recorded an asset impairment of $17.3 million, pre-tax, during the year ended December 31, 2007, which represented the net book value of the damaged assets. Insurance recoveries are recorded as a reduction to the loss related to the write-down of assets where such recoveries relate to repair and reconstruction costs, or as a reduction to operating expenses where such recoveries relate to other costs or business interruption losses.
	During the year ended December 31, 2007, Covanta recorded insurance recoveries and received cash proceeds of $2.7 million related to clean-up costs. During the years ended 2007 and 2008, Covanta recorded insurance recoveries of $2.0 million and $5.2 million, respectively, related to business interruption losses, for which cash proceeds of $7.2 million were received during the year ended December 31, 2008. During the years ended 2007 and 2008, Covanta recorded insurance recoveries of $17.3 million and $8.3 million, respectively, related to repair and reconstruction costs, for which cash proceeds of $9.4 million and $16.2 million were received during the years ended December 31, 2007 and 2008, respectively.
(C)	During the first quarter of 2007, Covanta completed public offerings of common stock and 1.00% Senior Convertible Debentures, and Covanta Energy closed on new credit facilities. In addition, Covanta Energy completed tender offers for outstanding notes previously issued by its intermediate subsidiaries. As a result of the recapitalization, Covanta recognized a loss on extinguishment of debt of approximately $32.1 million, pre-tax.
(D)	The components of Adjusted EBITDA are as follows:

	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
	2008		2007			2008		2007
			(Unaudited, in thousands)
Impact of SEMASS fire(1)	$	8,268	$	(785	)	$	13,380	$	(3,335	)
All other		129,800		153,597			560,409		552,516
Adjusted EBITDA	$	138,068	$	152,812		$	573,789	$	549,181

(1) For 2008, this amount primarily includes insurance recoveries for repair and reconstruction costs, and business interruption losses. For 2007, this amount represents plant operating expenses related to the SEMASS fire, but excludes lost revenue during the restoration of the SEMASS energy-from-waste facility.

Covanta Holding Corporation	Exhibit 5
Reconciliation of Cash Flow Provided by Operating Activities to Adjusted EBITDA

	Three Months Ended					Twelve Months Ended
	December 31,					December 31,				Full Year
	2008			2007		2008		2007		Estimated 2009
	(Unaudited, in thousands)
Cash flow provided by operating activities	$	135,109		$	119,267	$	402,607	$	363,591		$325,000 - $375,000
Debt service		21,875			27,083		94,821		111,105		84,000 - 79,000
Amortization of debt premium and deferred financing costs		1,518			3,027		7,023		11,016		7,000
Other		(20,434	)		3,435		69,338		63,469		84,000 - 79,000
Adjusted EBITDA	$	138,068		$	152,812	$	573,789	$	549,181		$500,000 - $540,000

Covanta Holding Corporation	Exhibit 6
Statements of Cash Flows Selected Data

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,						Full Year
	2008			2007			2008			2007			Estimated 2009
	(Unaudited, in thousands)
Cash flow provided by operating activities	$	135,109		$	119,267		$	402,607		$	363,591			$325,000 - $375,000
Uses of cash flow provided by operating activities
Purchase of property, plant and equipment(A)
Capital expenditures associated with SEMASS fire(B)	$	(428	)	$	(2,823	)	$	(3,065	)	$	(18,144	)
Capital expenditures associated with certain acquisitions(C)		(2,851	)		(8,756	)		(17,126	)		(12,121	)
Capital expenditures associated with technology development(D)		(1,610	)		—			(6,742	)		—
Pre-construction development projects(E)		(1,208	)		—			(1,208	)		—
All other capital expenditures(F)		(14,523	)		(13,938	)		(59,779	)		(55,483	)		$(60,000)
Total purchases of property, plant and equipment	$	(20,620	)	$	(25,517	)	$	(87,920	)	$	(85,748	)
Acquisition of businesses, net of cash acquired	$	(53,265	)	$	(47,210	)	$	(73,393	)	$	(110,465	)
Purchase of equity interests	$	—		$	(946	)	$	(18,503	)	$	(11,199	)
Principal payments on long-term debt	$	(1,831	)	$	(12,982	)	$	(6,877	)	$	(1,181,130	)		$(7,000)
Principal payments on project debt	$	(113,469	)	$	(90,774	)	$	(187,800	)	$	(164,167	)		$(169,000)

(A)	Purchase of property, plant and equipment is also referred to as Capital Expenditures.
(B)	Capital Expenditures were incurred that related to the repair and replacement of assets at the SEMASS energy-from-waste facility that were damaged by a fire on March 31, 2007. The cost of repair or replacement was insured under the terms of the applicable insurance policy, subject to deductibles. Settlement of the property damage insurance claim occured in December 2008. During the years ended December 31, 2007 and 2008, Covanta received $9.4 million and $16.2 million, respectively, in insurance proceeds related to property damage, which is included as Property Insurance Proceeds in the investing activities section of Covanta’s statement of cash flows for the respective periods.
(C)	Capital Expenditures were incurred at four facilities that Covanta acquired in 2008 and 2007 primarily to improve the productivity or environmental performance of those facilities. The majority of these expenditures were incurred at the two California biomass facilities acquired in July 2007. Covanta invested approximately $8 million prior to December 31, 2007 and approximately $11.3 million during the year ended December 31, 2008 in capital improvements in these biomass facilities. In June 2008, Covanta acquired an energy-from-waste facility in Tulsa, Oklahoma This facility was shut down by the prior owner in the summer of 2007 and two of the facility’s three boilers were returned to service in November 2008, and Covanta plans to return its third boiler to service during 2009. During the year ended December 31, 2008, Covanta invested approximately $5.1 million in capital improvements to restore the operational performance of the facility.
	Although, in accordance with GAAP, this spending will be recorded as a component of purchase of property, plant and equipment on Covanta’s statement of cash flows, management considers this spending as a component of the cost to acquire these businesses since these major capital improvements are required to achieve desired facility performance.
(D)	Capital Expenditures related to internal development efforts and/or agreements with multiple partners for the development, testing or licensing of new technologies related to the transformation of waste materials into renewable fuels, the generation of alternative energy methods, and nitrogen oxide (NOx) emission controls.
(E)	Covanta has entered into definitive agreements for the development of a 1,700 metric ton per day energy-from-waste project serving the City of Dublin, Ireland and surrounding communities. The permitting process is underway and construction is expected to commence in 2009. During 2008, Covanta incurred capital expenditures related to pre-construction activities, such as site preparation costs, for this project.
(F)	Capital Expenditures primarily to maintain existing facilities.

Covanta Holding Corporation	Exhibit 7
Components of Diluted Earnings Per Share

	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
	2008			2007		2008			2007
	(Unaudited)
Impact of SEMASS fire and insurance recoveries, net of write-down of assets and tax(A)	$	0.03		$	0.02	$	0.05		$	(0.01	)
Loss on extinguishment of debt, net of tax(B)		—			—		—			(0.12	)
Net tax impact from Grantor Trust activity and NOL valuation allowance changes (C)		(0.06	)		0.20		(0.10	)		0.17
All other		0.22			0.25		0.95			0.81
Diluted Earnings Per Share	$	0.19		$	0.47	$	0.90		$	0.85

(A)	On March 31, 2007, the SEMASS energy-from-waste facility experienced a fire in the front-end receiving portion of the facility. Damage was extensive to this portion of the facility and operations at the facility were suspended completely for approximately 20 days. As a result of this loss, Covanta recorded an asset impairment of $17.3 million, pre-tax, during the year ended December 31, 2007, which represented the net book value of the damaged assets.
	During the years ended 2007 and 2008, Covanta recorded insurance recoveries of $17.3 million and $8.3 million, respectively, related to repair and reconstruction costs, for which cash proceeds of $9.4 million and $16.2 million were received during the years ended December 31, 2007 and 2008, respectively.
	For 2008, this amount includes insurance recoveries for business interruption losses of $5.2 million. For 2007, this amount represents plant operating expenses related to the SEMASS fire, but excludes lost revenue during the restoration of the SEMASS energy-from-waste facility.
(B)	During the first quarter of 2007, Covanta completed public offerings of common stock and 1.00% Senior Convertible Debentures, and Covanta Energy closed on new credit facilities. In addition, Covanta Energy completed tender offers for outstanding notes previously issued by its intermediate subsidiaries. As a result of the recapitalization, Covanta recognized a loss on extinguishment of debt of approximately $32.1 million, pre-tax.
(C)	During the fourth quarter of 2008, Covanta recognized additional tax liabilities associated with the activity from the wind-down of the grantor trusts that arose from our predecessor insurance entities.
	During 2007 Covanta reduced its valuation allowance by $35.0 million. The reduction primarily included a $31.4 million fourth quarter adjustment related to net operating losses (“NOLs”) that were due to expire in 2007. The additional reduction to the valuation allowance of $3.6 million related to previously unrecognized state NOLs and federal NOLs for an unconsolidated subsidiary.

Discussion of Non-GAAP Financial Measures

To supplement our results prepared in accordance with United States generally accepted accounting principles (“GAAP”), we use the measure of Adjusted EBITDA, which is a non-GAAP measure as defined by the Securities and Exchange Commission. The non-GAAP financial measure of Adjusted EBITDA described below, and used in the tables above, is not intended as a substitute and should not be considered in isolation from measures of financial performance or liquidity prepared in accordance with GAAP. In addition, our non-GAAP financial measure may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes.

We use a number of different financial measures, both GAAP and non-GAAP, in assessing the overall performance of our business. We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities of our most significant subsidiary, Covanta Energy Corporation, and as 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 our business. 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 its business and those of possible acquisition candidates, and highlight trends in the overall business. We also use this non-GAAP financial measure as a significant criterion of performance-based components of employee compensation.

Adjusted EBITDA should not be considered as an alternative to net income or an alternative to 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.

Adjusted EBITDA

The calculation of Adjusted EBITDA is based on the definition in Covanta Energy’s credit facilities, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis.

Under these credit facilities, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of December 31, 2008. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity.

These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows:

• maximum Covanta Energy leverage ratio of 4.00 to 1.00 (which declines for quarterly periods after September 30, 2009), which measures Covanta Energy’s Consolidated Adjusted Debt, (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA; and

• minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy’s Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and twelve months ended December 31, 2008 and 2007, reconciled for each such periods to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP.