SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/x/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 2001.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from __________ to __________.
Commission file number 1-3122
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
Covanta Energy Group Profit Sharing Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Covanta Energy Corporation
40 Lane Road
Fairfield, NJ 07007
Covanta Energy Group Profit
Sharing Plan
(formerly Ogden Projects Profit Sharing Plan)
Independent Auditors' Report
Financial Statements
As of December 31, 2001 and 2000
and for the Year Ended December 31, 2001
Supplemental Schedule
December 31, 2001
COVANTA ENERGY GROUP PROFIT SHARING PLAN
(formerly Ogden Projects Profit Sharing Plan)
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of
December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Benefits for
the Year Ended December 31, 2001 3
Notes to Financial Statements 4-8
SUPPLEMENTAL SCHEDULE-
Form 5500, Schedule H, Part IV, Line 4i - Schedule of Assets
Held at End of Year as of December 31, 2001 9
INDEPENDENT AUDITORS' REPORT
Covanta Energy Group Profit Sharing Plan
We have audited the accompanying statements of net assets available for benefits
of the Covanta Energy Group Profit Sharing Plan (formerly Ogden Projects Profit
Sharing Plan) (the "Plan") as of December 31, 2001 and 2000, and the related
statement of changes in net assets available for benefits for the year ended
December 31, 2001. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2001 and 2000, and the changes in net assets available for benefits for the year
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
Table of Contents is presented for the purpose of additional analysis and is not
a required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This schedule is the responsibility of the Plan's management. Such
schedule has been subjected to the auditing procedures applied in our audit of
the basic 2001 financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic financial statements
taken as a whole.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
July 10, 2002
COVANTA ENERGY GROUP PROFIT SHARING PLAN
(formerly Ogden Projects Profit Sharing Plan)
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
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2001 2000
ASSETS:
Investments (Note 3) $47,815,720 $50,314,914
Receivables:
Employer contributions 13,245 -
Participant contributions 44,438 91,253
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Total receivables 57,683 91,253
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NET ASSETS AVAILABLE FOR BENEFITS $47,873,403 $50,406,167
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See notes to financial statements.
COVANTA ENERGY GROUP PROFIT SHARING PLAN
(formerly Ogden Projects Profit Sharing Plan)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2001
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ADDITIONS:
Additions to net assets attributed to-
Interest and dividends $ 1,571,150
Contributions:
Employer 1,504,354
Employee 1,647,103
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Total contributions 3,151,457
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Net transfer from other plans 1,314,896
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Total additions 6,037,503
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DEDUCTIONS:
Deductions from net assets attributed to:
Net depreciation in fair value of investments (Note 3) (5,797,570)
Distributions to participants (2,736,793)
Administrative expenses (35,904)
-----------
Total deductions (8,570,267)
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NET DECREASE IN NET ASSETS AVAILABLE (2,532,764)
FOR BENEFITS
NET ASSETS AVAILABLE FOR BENEFITS:
BEGINNING OF YEAR 50,406,167
-----------
END OF YEAR $47,873,403
===========
See notes to financial statements.
COVANTA ENERGY GROUP PROFIT SHARING PLAN
(formerly Ogden Projects Profit Sharing Plan)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
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1. DESCRIPTION OF THE PLAN
The following is a brief description of the Covanta Energy Group Profit
Sharing Plan (formerly Ogden Projects Profit Sharing Plan) (the "Plan").
Participants should refer to the Plan document for more complete
information.
a. General Information - The Plan is a defined contribution employee
savings plan providing for both employer and employee contributions.
The Plan includes a pre-tax savings feature which is intended to
qualify under Sections 401(k) and 401(a) of the Internal Revenue Code
(the "Code"). Prior to January 1, 1998, the Plan included an after-tax
savings feature which was intended to qualify under Section 401(a) of
the Code. The after-tax feature of the Plan was discontinued effective
December 31, 1997 (see Note 1(f)). The Plan is intended to conform with
the requirements of the Tax Reform Act of 1986 and the Technical and
Miscellaneous Revenue Act of 1988. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
The Plan was amended, effective January 1, 2002, to exclude from
participation any employee who is eligible to participate in the newly
adopted Covanta Energy Savings Plan. In addition, no participant who is
eligible to participate in the Covanta Energy Savings Plan is permitted
to make an employee contribution or rollover contribution to the Plan
and no employer contribution can be made with respect to participants
who are eligible to participate in the Covanta Energy Savings Plan. The
Company intends to move existing account balances into the Covanta
Energy Savings Plan.
b. Administration of the Plan - The Administrative Committee, which is
appointed by the Board of Directors (the "Board") of Covanta Energy
Group, Inc. ("CEG" or the "Company"), serves as a fiduciary of the
Plan. The Administrative Committee has general responsibility for the
administration and interpretation of the Plan.
The Covanta Energy Group Investment Committee is responsible for the
appointment of investment advisors and for reviewing the performance of
the investment portfolio. Costs related to the administration of the
Plan are paid by the participants out of Plan assets.
CEG is the Plan's sponsor and a wholly owned subsidiary of Covanta
Energy Corporation ("Covanta"), which has announced a financial
restructuring plan resulting from its comprehensive review of strategic
alternatives. As the first element of that plan, on April 1, 2002,
Covanta and 123 of its domestic subsidiaries (the "Debtors") filed
voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") with the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). CEG was not included in these filings of the voluntary
petitions for reorganization. The Debtors are currently operating their
businesses as debtors in possession pursuant to the Bankruptcy Code.
The Debtors' dependence upon, among other things, confirmation of a
plan of reorganization, their ability to comply with the terms of their
debtor in possession financing facility, and their ability to generate
sufficient cash flows from operations, asset sales and financing
arrangements to meet their obligations, raise substantial doubt about
their ability and that of CEG to continue as going concerns. The
Debtors' debtor in possession financing facility includes provisions
enabling Covanta and its subsidiaries, including CEG, to obtain funding
for making employer discretionary contributions to the Plan (see Note 1
(f)).
As a result of publicly disclosed information concerning Covanta and
uncertainty of future rules and regulations which may apply to the
Plan's investment in Covanta's common stock, the Investment Committee
determined that it was in the best interest of the Plan and its
participants to discontinue the Covanta Stock Fund (see Note 7) as an
investment option under the Plan effective March 18, 2002.
Additionally, the Plan was amended to allow Plan participants to
maintain their investment in the Covanta Stock Fund or, at their
discretion, redirect their investment to another investment fund
offered under the Plan. Also, on May 16, 2002, the Securities and
Exchange Commission granted the application of the New York Stock
Exchange, Inc. (the "NYSE") for removal of Covanta's common stock from
listing and registration on the NYSE. The removal of such stock became
effective at the opening of the trading session on May 17, 2002.
c. Participation - Each employee who was, as of December 31, 1988, a
participant in the Plan continued to be a participant if they were
employed by CEG on such date. Each other eligible employee who
performs an hour of service after December 31, 1988 becomes a
participant on the first day of the month coinciding with or next
following the later of: (i) the date on which the eligible employee
has completed 1,000 hours of service and (ii) six months of service.
d. Participants Accounts - Shares in group trust funds were determined on
the basis of the initial asset contribution to the trust by each
participating plan, adjusted for subsequent contributions,
distributions and allocated income and realized and unrealized gains
and losses. Allocation of income, realized and unrealized gains and
losses, and administrative expenses were determined monthly on the
basis of each plan's proportionate share in the plan assets stated at
fair value.
e. Vesting - Vesting of employer contributions to the Plan is determined
based on the period of vesting service by participants commencing on
their date of hire to their date of termination of service in
accordance with the following schedule:
Percent
Years of Vesting Service in the Plan Vested
Less than one year of vesting service 0%
One but less than two years of vesting service 20
Two but less than three years of vesting service 40
Three but less than four years of vesting service 60
Four but less than five years of vesting service 80
Five or more years of vesting service 100
Participant contributions are immediately 100% vested.
f. Contributions - Contributions paid by CEG are determined by the
Compensation Committee of the Board. The Board's determination may be
expressed in terms of a stated percentage of CEG's annual net profit,
as a fixed dollar amount or as a percentage of total compensation paid
to each participant. The contribution may not exceed the amount
deductible by CEG for Federal income tax purposes and may be made only
out of its current or accumulated earnings and profits. During 2002,
the Compensation Committee of the Board approved a discretionary
contribution for 2001 that Plan management expects to be paid to the
Plan in the second half of 2002. The 2000 discretionary contribution
was made during 2001. The allocation of the contributions to individual
participants is based on the relationship of compensation paid to each
participant to the compensation paid to all participants. Participants
may contribute one to ten percent of their annual compensation on a
pre-tax basis. Participants direct the investment of their
contributions into various investment options offered by the Plan. For
2001 and 2000, participant pre-tax contributions could each not exceed
$10,500 in accordance with Internal Revenue Service ("IRS")
Regulations.
Effective January 1, 1998, participants in the Plan may not elect to,
nor continue to, make after-tax contributions to the Plan. Any
after-tax contributions made by a participant on or before December 31,
1997 and credited to his/her after-tax contribution account shall
remain in such after-tax contribution account and will continue to be
adjusted in accordance with the provisions of the Plan document
g. Distribution from the Plan because of Hardship - Withdrawals are
permitted if a participant establishes, to the satisfaction of the
Administrative Committee, a financial need for funds for which there is
no other money available such as: (i) to purchase a primary residence;
(ii) to pay uninsured medical expenses for the participant or immediate
family; (iii) to prevent mortgage foreclosure on, or eviction from
their primary residence; or (iv) to pay post-secondary educational
expenses for the participant, spouse, children or dependents.
h. Payments from the Plan's Trust - The value of a participant's interest
in the Plan is payable upon retirement, disability, death, or
termination of employment, as follows:
(i) Upon termination of service of a participant on or after
retirement date or by reason of death or disability, an amount
equal to the value of the participant's account as of the
valuation date next following the date of termination of service,
whether or not such participant has a vested interest in such
account, is paid from the trust. Participants may elect to receive
the distribution valued as of any month after the date of
termination of service but not later than the April 1st of the
year following the year the participant attains age 70-1/2.
(ii) Upon the termination of service of any participant, the
participant may be paid in a lump sum amount equal to the value as
of the valuation date coincident with or following the date of
termination of service, of the vested interest, if any, in the
account. Such payment is made to the participant as soon as
practicable after termination of service. Participants may elect
to receive the distribution valued as of any month after the date
of termination of service but not later than April 1st of the year
following the year the participant attains age 70-1/2.
Any benefit payable under the Plan pursuant to (i) above is paid
as one lump sum payment from the trust, with a supplemental
payment to be made as promptly as possible in respect to any
contribution allocated to the participant's account for the Plan
year.
i. Loans - In accordance with Plan policy, participants can borrow against
the vested portion of their account balance. Borrowings are limited to
the lesser of $50,000 or 50% of the participant's vested balance (not
to exceed certain limitations). While such loans do not represent a
reduction of the participant's account balance, participants are
prohibited from receiving allocations (earnings) based on the loan
amounts, although when the loans are repaid, the interest expense
incurred by the participant is added to the participant's account
balance. The interest rate on such loans is the prime lending rate plus
1%. Loans to participants, which comprise the Loan Fund, are reported
at cost, which approximates fair value.
j. Forfeitures - Forfeitures arising under the Plan during the year are
allocated by the Administrative Committee first to administrative
expenses, then to Participants' accounts in the same manner as
contributions (see Note 1(f)). At December 31, 2001, forfeitures on
nonvested accounts totaled $32,832.
k. Transfers - Net transfers from other plans represent amounts
transferred from other plans sponsored by Covanta affiliates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed in the preparation of the
financial statements of the Plan are in conformity with accounting
principles generally accepted in the United States of America. The
following is a description of the more significant of these policies:
a. Investment Funds - Plan assets are held by T. Rowe Price Trust Company
(the "Trustee"). All investments are participant-directed.
b. Investment Valuation and Income Recognition - The Plan's investments
are stated at fair value. Shares of mutual funds are valued at quoted
market prices, which represent the net asset value of shares held by
the Plan at year-end. Investments in the U.S. Treasury Money Fund are
stated at cost plus investment income, which approximates fair value.
Participant loans are valued at outstanding principle balance due for
loans taken from individual accounts, which approximates fair value.
Purchase and sales of securities are recorded on a trade date basis.
Dividends are recorded on the ex-dividend date.
Amounts for securities that have no quoted market prices represent
estimated fair value. The approximate value of the Covanta Stock Fund
is the quoted market price of Covanta's common stock.
The T. Rowe Price Stable Value Common Trust Fund ("Stable Value Fund")
which invests in benefit-responsive investments and is valued at
contract value (cost plus accrued interest), which approximates fair
value.
c. Distributions to Participants - Benefit payments to participants are
recorded when paid.
d. Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of net assets available for benefits
and changes therein. Actual results could differ from the estimates and
assumptions used.
e. Risks and Uncertainties - The Plan provides for various investment
options (Note 3). Investment securities, in general, are exposed to
various risks, such as interest rate, credit and overall market
volatility. Due to the level of risk associated with certain investment
securities, it is reasonably possible that changes in value of
investment securities will occur in the near term and that such changes
would materially affect participants' account balances and the amounts
reported in the statements of net assets available for benefits.
f. Expenses - Administrative expenses of the Plan are paid by either the
Plan or the Plan's sponsor as provided in the Plan document.
g. Accounting for Derivative Instruments - The Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, in June 1998. SFAS No. 133, as amended and
interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It requires
entities, including employee benefit plans, to recognize all
derivatives as either assets or liabilities in the statement of net
assets available for benefits and to measure those instruments at fair
value. Effective January 1, 2001, the Plan adopted this statement. The
adoption of SFAS No. 133 had no impact on the financial statements of
the Plan for the year ended December 31, 2001.
3. INVESTMENTS
The following is a summary of the Plan's investments held by the Trustee
at December 31, 2001 and 2000 that represent 5% or more of the Plan's net
assets:
2001 2000
Investments at fair value:
Fidelity Magellan Fund $ 8,868,676 $10,022,563
*T. Rowe Price International Stock Fund 2,430,359 3,422,571
*T. Rowe Price Equity Income Fund 11,313,355 11,416,000
*Covanta Stock Fund 749,634 2,899,258
*Stable Value Fund 8,133,996 6,807,901
*T. Rowe Price Blue Chip Growth Fund 3,727,623 4,287,543
*T. Rowe Price Equity Index 500 Fund 2,548,986 2,937,281
*T. Rowe Price U.S. Treasury Money Fund 2,616,398 1,812,771
*Permitted party-in-interest
During 2001, the Plan's investments (including gains and losses on
investments bought and sold as well as held during the year) depreciated
in value by $5,797,570 as follows:
Fidelity Magellan Fund $(1,260,920)
*T. Rowe Price International Stock Fund (752,438)
*T. Rowe Price Equity Income Fund (463,236)
*Covanta Stock Fund (1,557,561)
*T. Rowe Price Balanced Fund (76,930)
*T. Rowe Price New Horizons Fund (138,522)
*T. Rowe Price Spectrum Income Fund (9,186)
*T. Rowe Price Blue Chip Growth Fund (656,650)
*T. Rowe Price Equity Index 500 Fund (386,258)
*T. Rowe Price Small-Cap Value Fund 187,709
*T. Rowe Price Science & Technology Fund (710,868)
*T. Rowe Price Mid-Cap Growth Fund 27,290
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$(5,797,570)
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*Permitted party-in-interest
4. INVESTMENT CONTRACTS
The Stable Value Fund primarily invests in investment contracts providing
a guaranteed return on principal invested over a specified time period.
Investment contracts in the Stable Value Fund are fully
benefit-responsive and are recorded at their fair values. Generally, fair
value approximates contract value (contributions made plus interest
accrued at the contract rate, less withdrawals and fees). If, however, an
event has occurred that may impair the ability of the contract issuer to
perform in accordance with the contract terms, fair value may be less
than the contract value. The crediting interest rates at December 31,
2001 for the various investment contracts ranged from 4.85% to 7.83%. The
average yield of the Stable Value Fund for the year ended December 31,
2001 was 5.42 %.
5. PLAN TERMINATION
The Board or the Administrative Committee may amend the Plan at any time.
No such amendment, however, may have the effect of diverting to CEG any
part of the Plan for any purpose other than for the exclusive benefit of
the participants. Likewise, an amendment may not reduce the interest of
any participant in the Plan accrued prior to such amendment. The Board or
the Administrative Committee may, however, make such amendments to the
extent required to conform the Plan to ERISA or to maintain the continued
qualified status of the Plan under the Code.
CEG expects to continue the Plan indefinitely, but reserves the right to
suspend contributions or to modify or terminate the Plan at any time.
Upon termination of the Plan or discontinuance of contributions
thereunder, the interest of each participant is fully vested and
nonforfeitable.
6. FEDERAL INCOME TAX STATUS
The IRS has determined and informed the Company by letter dated June 16,
1995 that the Plan and related trust are designed in accordance with
applicable sections of the Code. The Plan has been amended since
receiving the determination letter. However, the Plan Administrator
believes that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the Code. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
7. PARTY-IN-INTEREST TRANSACTIONS
The Covanta Stock Fund invested in Covanta common stock which was traded
on the New York Stock Exchange (see Note 1).
The Plan invests in certain mutual funds managed by the Trustee.
Certain officers and employees of the Company (who may also be
participants in the Plan) perform administrative services related to the
operation, record keeping and financial reporting of the Plan. The
Company pays these individuals salaries and also pays other
administrative expenses on behalf of the Plan. Certain fees, including
fees for the investment management services, to the extent not paid by
the Company, are paid by the Plan.
These transactions are not deemed prohibited party-in-interest
transactions, because they are covered by statutory administrative
exemptions from the Code's and ERISA's rules on prohibited transactions.
******
COVANTA ENERGY GROUP PROFIT SHARING PLAN
(fromerly Ogden Projects Profit Sharing Plan)
FORM 5500, SCHEDULE H, PART IV, LINE 4i -
SCHEDULE OF ASSETS HELD AT END OF YEAR
DECEMBER 31, 2001
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Description Number of Market
Identity of Issue of Investment Shares/Units Value
MUTUAL FUNDS AND GUARANTEED
INVESTMENT CONTRACT ("GIC")
*T. Rowe Price Equity Income Fund Mutual Fund 478,366 $ 11,313,355
*Stable Value Fund GIC 8,133,996 8,133,996
Fidelity Magellan Fund Mutual Fund 85,096 8,868,676
*T. Rowe Price International Stock Fund Mutual Fund 221,143 2,430,359
*T. Rowe Price Balanced Fund Mutual Fund 47,524 831,186
*T. Rowe Price Spectrum Income Fund Mutual Fund 41,599 440,952
*T. Rowe Price Blue Chip Growth Fund Mutual Fund 128,672 3,727,623
*T. Rowe Price Equity Index 500 Fund Mutual Fund 82,652 2,548,986
*T. Rowe Price Small-Cap Value Fund Mutual Fund 65,356 1,480,977
*T. Rowe Price New Horizons Fund Mutual Fund 73,909 1,672,555
*T. Rowe Price Science & Technology Fund Mutual Fund 59,736 1,249,682
*T. Rowe Price Mid-Cap Growth Fund Mutual Fund 21,159 833,660
MONEY FUNDS-
* T. Rowe Price U.S. Treasury Money Fund Money Fund 2,616,398 2,616,398
COMMON STOCKS-
*Covanta Stock Fund Common Stock 164,803 749,634
PARTICIPANT LOANS-
*Notes receivable from participants (with interest
from 7.75% to 10.50%; maturity from June 2002 to
October 2010) Participant Loans N/A 917,681
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TOTAL $ 47,815,720
============
*Permitted party-in-interest.
Cost information is not required for participant-directed investments and,
therefore, is not included.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the Covanta Energy Group Profit
Sharing Plan) have duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Covanta Energy Group Profit Sharing Plan
Date: July 15, 2002 By: /s/ Louis M. Walters
------------------------- -------------------------------------------
Louis M. Walters
Member of the Covanta Energy Group Profit
Sharing Plan Administrative Committee
EXHIBIT INDEX
Exhibit Number Description of Exhibit
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23.1 Consent of Independent Auditors