UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018



¨	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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filerþ	Accelerated ~~filer~~ ofiler	Non-accelerated ~~filer~~ o filer	Smaller reporting companyo	Emerging growth ~~company~~ o company
þ	o	o	o	o
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Applicable Only to Corporate Issuers:

Indicate the number of shares of the registrant’s Common Stock outstanding as of the latest practicable date.



Class		Outstanding at ~~October~~July 20, ~~2017~~2018
Common Stock, $0.10 par value		~~131,014,890~~130,820,400

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

~~For the Quarter Ended~~ ~~September~~FOR THE QUARTER ENDED JUNE 30, ~~2017~~2018



	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~~Six Months Ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ (Unaudited)	5
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017	6
	Condensed Consolidated Statements of Cash Flow for the ~~Nine~~Six Months Ended ~~September~~June 30, 2018 and 2017 ~~and 2016~~ (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Note 1. Organization and Basis of Presentation	8
	Note 2. Recent Accounting Pronouncements	9
	~~Note 3. Acquisitions and Dispositions~~	10
	~~Note 4. Earnings Per Share (“EPS”) and Equity~~	11
	Note ~~5. Financial Information by Business Segments~~3. Acquisitions and Dispositions	12
	Note 4. Earnings Per Share (“EPS”) and Equity	13
	Note ~~6. Consolidated Debt~~5. Financial Information by Business Segments	14
	Note 6. Revenue	14
	Note 7. ~~Income Taxes~~Stock-Based Compensation	16
	Note 8. Supplementary Information	1617
	Note 9. ~~Stock-Based Compensation~~Income Taxes	18
	Note 10. Financial Instruments	1819
	Note 11. ~~Derivative Instruments~~Equity Method Investments	20
	Note 12. ~~Commitments and Contingencies~~Derivative Instruments	20
	Note 13. Consolidated Debt	21
	~~Item 2.~~Note 14. Commitments and Contingencies	22
	Note 15. Subsequent Event	24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	~~Consolidated Results of Operations~~	25
	Consolidated Results of Operations	26
	Adjusted ~~Earnings Per Share~~EBITDA (Non-GAAP Discussion)	32
	Adjusted ~~EBITDA~~Earnings Per Share (Non-GAAP Discussion)	33
	~~Liquidity and Capital Resources~~	34
	~~Free Cash Flow (Non-GAAP Discussion)~~Liquidity and Capital Resources	35
	~~Item 3.~~Free Cash Flow (Non-GAAP Discussion)	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4039
Item 1A.	Risk Factors	4039
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4039
Item 3.	Defaults Upon Senior Securities	4039
Item 4.	Mine Safety Disclosures	4039
Item 5.	Other Information	4039
Item 6.	Exhibits	4039
	OTHER
Signatures		4140

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 ~~the~~ 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~~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 ~~2016~~2017 Annual Report on Form ~~10-K.~~10-K ("10K").

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


													Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						2018			2017			2018			2017
	2017			2016			2017			2016
	(Unaudited) (In millions, except per share amounts)												(Unaudited) (In millions, except per share amounts)
OPERATING REVENUE:
Waste and service revenue	$	306		$	299		$	902		$	875		$	333		$	310		$	645		$	596
Energy revenue	80			92			241			279			76			75			176			161
Recycled metals revenue	23			14			54			44			25			15			49			31
Other operating revenue	20			16			60			44			20			24			42			40
Total operating revenue	429			421			1,257			1,242			454			424			912			828
OPERATING EXPENSE:
Plant operating expense	301			272			952			901			334			319			679			651
Other operating expense, net	7			14			24			45			19			2			27			17
General and administrative expense	24			23			82			71			27			30			58			58
Depreciation and amortization expense	51			52			155			155			55			52			109			104
Impairment charges	—			—			1			19			37			1			37			1
Total operating expense	383			361			1,214			1,191			472			404			910			831
Operating income	46			60			43			51
Operating (loss) income													(18		)	20			2			(3		)
OTHER INCOME (EXPENSE):
Interest expense, net	(35		)	(35		)	(106		)	(103		)
Gain (loss) on asset sales	—			43			(6		)	43
Interest expense													(36		)	(35		)	(74		)	(71		)
(Loss) gain on sale of assets													—			(2		)	210			(6		)
Loss on extinguishment of debt	—			—			(13		)	—			—			(13		)	—			(13		)
Other income (expense), net	2			(1		)	2			(1		)
Total other (expense) income	(33		)	7			(123		)	(61		)
Income (loss) before income tax benefit (expense) and equity in net (loss) income from unconsolidated investments	13			67			(80		)	(10		)
Other (expense) income, net													(1		)	—			(1		)	—
Total (expense) income													(37		)	(50		)	135			(90		)
(Loss) income before income tax benefit (expense)													(55		)	(30		)	137			(93		)
Income tax benefit (expense)	2			(12		)	5			(5		)	22			(8		)	31			3
Equity in net (loss) income from unconsolidated investments	—			(1		)	1			3
Net Income (Loss)	$	15		$	54		$	(74	)	$	(12	)
Equity in net income from unconsolidated investments													2			1			2			1
Net (loss) income													$	(31	)	$	(37	)	$	170		$	(89	)

Weighted Average Common Shares Outstanding:
Basic	130			129			129			129			130			130			130			129
Diluted	131			131			129			129			130			130			132			129

Earnings (Loss) Per Share
(Loss) Earnings Per Share:
Basic	$	0.11		$	0.42		$	(0.58	)	$	(0.09	)	$	(0.24	)	$	(0.28	)	$	1.31		$	(0.69	)
Diluted	$	0.11		$	0.42		$	(0.58	)	$	(0.09	)	$	(0.24	)	$	(0.28	)	$	1.29		$	(0.69	)

Cash Dividend Declared Per Share	$	0.25		$	0.25		$	0.75		$	0.75		$	0.25		$	0.25		$	0.50		$	0.50

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

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30,
Nine Months Ended September 30,
2017
2016
2017
2016
(Unaudited, in millions)
Net income (loss) $ 15
$ 54
$ (74 ) $ (12 )
Foreign currency translation 4
(5 ) 16
1
Net unrealized (loss) gain on derivative instruments, net of tax benefit (expense) of $0, $1, $1 and ($4), respectively (1 ) —
2
(20 )
Other comprehensive income (loss) 3
(5 ) 18
(19 )
Comprehensive income (loss) $ 18
$ 49
$ (56 ) $ (31 )



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018		2017

	(Unaudited, in millions)
Net (loss) income	$	(31	)	$	(37	)	$	170	$	(89	)
Foreign currency translation, net of tax expense of $0, $0, $1, $0, respectively	(10		)	9			2		12
Net unrealized gain on derivative instruments, net of tax (benefit) expense of ($2), $1, ($1), $1, respectively	(5		)	3			27		3
Other comprehensive (loss) income	(15		)	12			29		15
Comprehensive (loss) income	$	(46	)	$	(25	)	$	199	$	(74	)

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

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(Unaudited)						(Unaudited)
	(In millions, except per share amounts)						(In millions, except per share amounts)
ASSETS
Current:
Cash and cash equivalents	$	37		$	84		$	39		$	46
Restricted funds held in trust	56			56			37			43
Receivables (less allowances of $11 million and $9 million, respectively)	325			332
Receivables (less allowances of $9 million and $14 million, respectively)							324			341
Prepaid expenses and other current assets	93			72			62			73
Assets held for sale							3			653
Total Current Assets	511			544			465			1,156
Property, plant and equipment, net	3,170			3,024			2,556			2,606
Restricted funds held in trust	32			54			24			28
Waste, service and energy contracts, net	254			263
Other intangible assets, net	38			34
Intangible assets, net							276			287
Goodwill	313			302			312			313
Other assets	43			63			211			51
Total Assets	$	4,361		$	4,284		$	3,844		$	4,441
LIABILITIES AND EQUITY
Current:
Current portion of long-term debt	$	10		$	9		$	10		$	10
Current portion of project debt	31			22			24			23
Accounts payable	64			98			64			151
Accrued expenses and other current liabilities	316			289			290			313
Liabilities held for sale							—			540
Total Current Liabilities	421			418			388			1,037
Long-term debt	2,365			2,243			2,295			2,339
Project debt	445			361			137			151
Deferred income taxes	605			617			385			412
Other liabilities	190			176			68			75
Total Liabilities	4,026			3,815			3,273			4,014
Commitments and Contingencies (Note 12)
Commitments and Contingencies (Note 14)
Equity:
Covanta Holding Corporation stockholders' equity:
Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)	—			—			—			—
Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 131 and 130, respectively)	14			14
Common stock ($0.10 par value; authorized 250 shares; issued 136 shares, outstanding 131 shares)							14			14
Additional paid-in capital	821			807			833			822
Accumulated other comprehensive loss	(44		)	(62		)	(26		)	(55		)
Accumulated deficit	(455		)	(289		)	(249		)	(353		)
Treasury stock, at par	(1		)	(1		)	(1		)	(1		)
Total Covanta Holding Corporation stockholders' equity	335			469
Total stockholders' equity							571			427
Total Liabilities and Equity	$	4,361		$	4,284		$	3,844		$	4,441

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

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW


							Six Months Ended June 30,
	Nine Months Ended September 30,						2018			2017
	2017			2016
	(Unaudited, in millions)						(Unaudited, in millions)
OPERATING ACTIVITIES:
Net loss	$	(74	)	$	(12	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)							$	170		$	(89	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	155			155			109			104
Amortization of deferred debt financing costs	5			5			3			3
Loss (gain) on asset sales	6			(43		)
(Gain) loss on sale of assets							(210		)	6
Impairment charges	1			19			37			1
Loss on extinguishment of debt	13			—			—			13
Stock-based compensation expense	16			13			14			11
Provision for doubtful accounts							—			3
Equity in net income from unconsolidated investments	(1		)	(3		)	(2		)	(1		)
Deferred income taxes	(7		)	3			(28		)	(6		)
Dividends from unconsolidated investments							1			—
Other, net	—			3			(8		)	(3		)
Change in restricted funds held in trust	18			22
Change in working capital, net of effects of acquisitions	(18		)	(12		)
Change in working capital, net of effects of acquisitions and dispositions							(21		)	(20		)
Changes in noncurrent assets and liabilities, net							(2		)	5
Net cash provided by operating activities	114			150			63			27
INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(218		)	(282		)	(130		)	(152		)
Acquisition of businesses, net of cash acquired	(16		)	(9		)	(4		)	(16		)
Proceeds from asset sales	—			107
Proceeds from the sale of assets, net of restricted cash							112			—
Property insurance proceeds	5			2			7			5
Payment of indemnification claim from sale of asset							(7		)	—
Other, net	(6		)	4			(1		)	(3		)
Net cash used in investing activities	(235		)	(178		)	(23		)	(166		)
FINANCING ACTIVITIES:
Proceeds from borrowings on long-term debt	400			—			30			400
Proceeds from borrowings on revolving credit facility	806			658			317			633
Proceeds from borrowing on Dublin project financing	71			139			—			60
Payments of borrowings on revolving credit facility	(676		)	(623		)
Payments on long-term debt	(413		)	(2		)	(3		)	(412		)
Payment on revolving credit facility							(387		)	(501		)
Payments on equipment financing capital leases	(4		)	(3		)	(3		)	(2		)
Payments on project debt	(20		)	(17		)	(13		)	(12		)
Payment of deferred financing costs	(9		)	(5		)	—			(9		)
Cash dividends paid to stockholders	(98		)	(98		)	(66		)	(65		)
Change in restricted funds held in trust	4			19
Common stock repurchased	—			(20		)
Financing of insurance premiums, net							(13		)	—
Other, net	9			(4		)	2			3
Net cash provided by financing activities	70			44
Net cash (used in) provided by financing activities							(136		)	95
Effect of exchange rate changes on cash and cash equivalents	4			1			2			3
Net (decrease) increase in cash and cash equivalents	(47		)	17
Cash and cash equivalents at beginning of period	84			96
Cash and cash equivalents at end of period	$	37		$	113
Net decrease in cash, cash equivalents and restricted cash							(94		)	(41		)
Cash, cash equivalents and restricted cash at beginning of period							194			194
Cash, cash equivalents and restricted cash at end of period							$	100		$	153

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents							$	39		$	48
Restricted funds held in trust- short term							37			50
Restricted funds held in trust- long term							24			55
Total cash, cash equivalents and restricted cash							$	100		$	153

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 (known as “energy-from-waste” or “EfW”), and also owns and operates related waste transport, processing and disposal assets. EfW serves ~~two key markets~~ as both a sustainable waste management solution that is environmentally superior to landfilling and as a source of clean energy that reduces overall greenhouse gas emissions and is considered renewable under the laws of many states and under federal law. Our facilities are critical infrastructure assets that allow our customers, which are principally municipal entities, to provide an essential public service.

Our EfW facilities earn revenue from both the disposal of waste and the generation of electricity and/or steam ~~generally under contracts,~~ as well as from the sale of metal recovered during the EfW process. We process approximately 20 million tons of solid waste annually. We operate and/or have ownership positions in 42 energy-from-waste facilities, which are primarily located in North ~~America.~~America and Ireland. In total, these assets produce approximately 10 million megawatt hours (“MWh”) of baseload electricity annually. We also operate a waste management infrastructure that is complementary to our core EfW business.

In addition, ~~to our core EfW business,~~ we offer a variety of sustainable waste management solutions in response to customer demand, including ~~on site clean-up services,~~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 ~~and logistics, recycling and depackaging.~~services. Together with our processing of non-hazardous "profiled waste" for purposes of assured destruction or sustainability goals in our EfW facilities, we offer these services under our Covanta Environmental Solutions brand.

We have one reportable segment ~~North America,~~ which is comprised of waste and energy services operations located primarily in the United States and Canada. We have completed construction of an energy-from-waste facility in Dublin, Ireland, which we own and which commenced commercial operations in October 2017.comprises our entire operating business. For additional information regarding our reportable segment, see Note 5. Financial Information by Business Segments.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes thereto required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments ~~(including normal recurring accruals)~~ 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 fiscal year ending December 31, ~~2017~~.2018. The condensed consolidated balance sheet at December 31, ~~2016,~~2017, was derived from audited annual consolidated financial statements, but does not contain all of the notes thereto from the annual consolidated financial statements. This Form 10-Q should be read in conjunction with the Audited Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (“Form 10-K”).

~~Change in~~

Accounting ~~Principle~~Pronouncements Recently Adopted

In ~~March 2016,~~May 2014, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several ASUs; hereinafter the collection of revenue guidance is referred to as Accounting Standards Codification (“ASC") 606. The core principle of ASC 606 is that revenue should be recognized to depict the transfer of promised goods or services to customers in an ~~update~~amount that reflects the consideration to ~~simplify~~which the ~~accounting~~entity expects to be entitled in exchange for ~~employee share-based payments, including income tax impacts, classification on the statement of cash flows, and forfeitures. We adopted this guidance effective~~those goods or services.

On January 1, ~~2017. The new guidance requires excess tax benefits~~2018, we adopted ASC 606 using the modified retrospective method. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and ~~deficiencies~~continue to be ~~recognized~~reported in accordance with the ~~income statement rather than in additional paid-in capital on the balance sheet and requires~~historic accounting guidance under ASC Topic 605, Revenue Recognition.

We recorded a ~~tax benefit related~~net decrease of $1 million to dividends paid on unvested share-based payment awards to be recognized as an income tax benefit on the income statement. As a result of applying this change prospectively, we recognized $0.5 million and zero of tax benefit in our provision for income taxes during the three and nine months ended September 30, 2017, respectively. In addition, adoption of the new guidance resulted in a $9 million decrease to Accumulatedbeginning accumulated deficit as of January 1, ~~2017~~2018 due to ~~recognize~~ the cumulative ~~effect~~impact of ~~deferred income taxes for U.S. Federal net operating loss and other carryforwards attributable~~adopting ASC 606. The impact to ~~excess tax benefits. Excess tax benefits were not recognized for financial reporting purposes in~~beginning accumulated deficit resulted from recognizing revenue evenly over the prior period. We prospectively applied the guidance which requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Cash paid on employees’ behalf related to shares withheld for tax purposes was retrospectively applied and required reclassifying $4 million from cash provided by operating activities to cash provided by financing activities on our condensed consolidated statement of cash flows as of September 30, 2016. We have elected to account for forfeitures as they occur, rather than to estimate them; adoption of this accounting policy election resulted in a $1 million increase to Accumulated deficit as of January 1, 2017 to recognize the cumulative-effect of removing the forfeiture estimate.contract year

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

for certain of our service fee contracts that are based on a contract year that is different from our calendar year. Contract acquisition costs are not material. The adoption of ASC 606 did not have a material impact on our condensed consolidated financial statements as of and for the three and six months ended June 30, 2018. As a result, comparisons of revenue and operating income between periods are not materially affected by the adoption of ASC 606. Refer to Note 6. Revenue for additional disclosures required by ASC 606.

In ~~January~~March 2017, the FASB issued ~~updated~~ASU 2017-07, Presentation of Net Periodic Pension and Postretirement Benefit Cost, to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that the service cost component of the net periodic benefit cost be presented in the same operating income line items as other compensation costs arising from services rendered by employees during the period. The non-service costs (e.g., interest cost, expected return on plan assets, amortization of actuarial gains/losses, settlements) should be presented in the income statement outside of operating income. The amendments also allow only the service cost component to be eligible for capitalization when applicable. We adopted this guidance ~~regarding business combinations, specifically~~ on ~~clarifying~~January 1, 2018. The amendments have been applied retrospectively for the ~~definition~~income statement presentation requirements and prospectively for the limit on costs eligible for capitalization. The line item classification changes required by the new guidance did not have a material impact on our condensed consolidated statement of operations.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) — Restricted Cash,” which requires that a ~~business~~statement of cash flows explain the change during the period in the total of cash, cash equivalents, and ~~provided a screen to determine whether or not an integrated set of assets~~amounts generally described as restricted cash and ~~activities constitutes a business. We are required to adopt the updates in~~restricted cash equivalents. With this standard, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. We adopted this guidance on January 1, 2018, and the guidance has been retrospectively applied to all periods presented. The total of cash, cash equivalents and restricted cash is described in ~~annual periods~~a supplemental table to the condensed consolidated statements of cash flows. The changes to the beginning ~~after December 15, 2017, including interim periods therein.~~ of period balance presented in our condensed consolidated statement of cash flows are as follows (in millions):



	December 31, 2017
	As adjusted		As previously reported
Cash and cash equivalents	$	46	$	46
Restricted funds classified as held for sale	77		—
Restricted funds held in trust- short term	43		—
Restricted funds held in trust- long term	28		—
Beginning of period balance presented in the statement of cash flows	$	194	$	46

The following table illustrates the effect of adoption of ASU 2016-18 on our condensed consolidated statements of cash flows (in millions):



	Six Months Ended June 30, 2017
	As adjusted			As previously reported
Cash provided by operating activities	$	27		$	26
Cash used in investing activities	$	(166	)	$	(166	)
Cash provided by financing activities	$	95		$	101

Restricted funds held in trust are primarily amounts received and held by third 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. These funds include debt service reserves for payment of principal and interest on project debt. Our restricted funds also include escrowed debt proceeds, amounts held in trust for operations, maintenance, environmental obligations, operating lease reserves in accordance with agreements with our clients, and amounts held for future scheduled distributions. Such funds are invested principally in money market funds, bank deposits and certificates of deposit, United States treasury bills and notes, United States government agency securities, and high-quality municipal bonds.

In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the

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

transfer occurs. The new standard must be ~~applied prospectively on or after~~adopted using a modified retrospective transition method, with the effective date, and no disclosures for a change in accounting principle are required at transition. Early adoption is permitted for transactions (i.e., acquisitions or dispositions) that occurred beforecumulative effect recognized as of the ~~issuance date or effective~~ date of ~~the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. We early~~initial adoption. Effective January 1, 2018, we adopted this standard. The adoption of this new guidance ~~as of January 1, 2017.~~did not have a material impact on our condensed consolidated financial statements.

Reclassifications

Certain amounts have been reclassified in our prior period condensed consolidated balance sheet to conform to current year presentation and such amounts were not material to current and prior periods. Also, as

As discussed above under ~~Change in~~ Accounting ~~Principle~~Pronouncements Recently Adopted, certain amounts have been reclassified in our prior period condensed consolidated statements of cash flows to conform to current year presentation. Certain other amounts have been reclassified in our prior period condensed consolidated balance sheet to conform to current year presentation. As a result, $251 million of intangible assets related to waste service and energy contracts, net are classified as Intangible assets, net on our condensed consolidated balance sheet as of December 31, 2017.

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

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

~~In August 2017, the Financial Accounting Standards Board (“FASB”)~~

The following table summarizes recent ASU's issued Accounting Standards Update (“ASU”) No. 2017-12 “Derivatives and Hedging (Topic 815)” (“ASU 2017-12”). The amendments of ASU 2017-12 expand an entity’s ability to apply hedge accounting for nonfinancial and financial risk components and allow for a simplified approach for fair value hedging of interest rate risk. ASU 2017-12 eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. Additionally, ASU 2017-12 simplifies the hedge documentation and effectiveness assessment requirements under the previous guidance. This standard is required to be adopted in the first quarter of 2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures.

~~In May 2017,~~by the FASB issued ASU 2017-10 “Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force),” which provides clarity on determining the customer in a service concession arrangement. The guidance, which is required to be adopted in the first quarter of 2018, will be applied on a modified retrospective basis beginning with the earliest period presented. Early adoption is permitted. This guidance is not expected tothat could have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. This guidance is not expected



Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	The amendments in this Update allow a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for adjustments to the tax effect of items in AOCI, that were originally recognized in other comprehensive income, related to the new statutory rate prescribed in the Tax Cuts and Jobs Act enacted on December 22, 2017, which reduces the U.S. federal corporate tax rate from 35% to 21%.	First quarter of 2019, early adoption is permitted, including adoption in any interim period.	We are currently evaluating the impact this guidance will have ~~a material impact~~ on our consolidated financial statements.
ASU 2017-04 Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	The standard updated guidance to eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (referred to as Step 2). As a result, an impairment charge will equal the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis.	First quarter of 2020, early adoption is permitted.	The impact of this guidance for us will depend on the outcomes of future goodwill impairment tests.
ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The standard amends guidance on the impairment of financial instruments. The ASU estimates credit losses based on expected losses and provides for a simplified accounting model for purchased financial assets with credit deterioration. The standard requires a modified retrospective basis adoption through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.	First quarter of 2020, early adoption is permitted.	We are currently evaluating the impact this guidance will have on our consolidated financial statements.
ASU 2016-02 Leases (Topic 842) as amended by ASU 2018-01	These standards amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The standard requires a modified retrospective basis adoption. The amendment permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840.	First quarter of 2019, early adoption is permitted.	As part of our impact assessment, we have performed an initial scoping exercise and preliminarily determined our lease population. A framework for the lease identification process has been developed and we are currently evaluating the lease population to determine our transition adjustment. Additionally, we are in the process of assessing any potential impacts on our internal controls and processes related to both the implementation and ongoing compliance of the new guidance. We plan to adopt the new guidance using a modified retrospective approach and expect that upon adoption, there will be a significant increase to our long-term assets and liabilities as a result of the minimum lease obligations, which were previously disclosed in our December 31, 2017 10K.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which updated guidance to eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (referred to as Step 2). As a result, an impairment charge will equal the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis. The guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed after January 1, 2017. The impact of this guidance for the Company will depend on the outcomes of future goodwill impairment tests.

In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323).” The portion of this ASU related to Topic 250 states that when a registrant does not know or cannot reasonably estimate the impact that future adoption of certain new accounting standards are expected to have on the financial statements, then in addition to making a statement to that effect, that registrant should consider additional qualitative financial statement disclosures addressing the significance of the impact the standard will have on the financial statements when adopted. We have included such disclosures for ASU 2014-09 but not for ASU 2016-02 since we have not yet performed sufficient analysis on future effects upon implementation of the new standards. We have concluded that the portion of this ASU related to Topic 323 is not applicable and, therefore, does not have a material impact on our consolidated financial statements. This ASU is effective upon issuance.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The guidance is required to be adopted in the first quarter of 2018 on a retrospective basis. Adoption of this guidance will eliminate the disclosure of Change in restricted funds held in trust, which we currently include in Net cash provided by operating activities and Net cash provided by financing activities on our condensed consolidated statement of cash flows.

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In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” requiring comprehensive recognition of current and deferred income taxes on intra-entity asset transfers other than inventory, which was previously prohibited. The guidance now requires us to recognize the tax expense from the intra-entity transfer of an asset when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. We are required to adopt this guidance in the first quarter of 2018 on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which updated guidance on eight specific cash flow issues with regard to how cash receipts and cash payments are presented and classified in the statement of cash flows in order to clarify existing guidance and reduce diversity in practice. The guidance is required to be adopted in the first quarter of 2018 on a retrospective basis, unless it is impracticable to apply, in which case it should be applied prospectively as of the earliest date practicable. Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which amended guidance for lease arrangements in order to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The guidance, which is required to be adopted in the first quarter of 2019, will be applied on a modified retrospective basis beginning with the earliest period presented. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which requires equity investments not accounted for as an equity method investment or that result in consolidation to be recorded at their fair value with changes in fair value recognized in our consolidated statements of operations. Those equity investments that do not have a readily determinable fair value may be measured at cost less impairment, if any, plus or minus changes resulting from observable price changes. This standard is required to be adopted in the first quarter of 2018, with early adoption prohibited. This guidance is not expected to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The standard is based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and certainty of revenue arising from contracts with customers. In August 2015, the FASB deferred the effective date by one year to January 1, 2018 and we will adopt the standard on January 1, 2018, as required. The standard can be adopted using either a full retrospective or modified retrospective approach as of the date of adoption. We have decided to adopt the standard using a modified retrospective approach, which may result in a cumulative effect adjustment as of the date of adoption. Our implementation approach includes performing a detailed review of key contracts representative of the services that we provide and assessing the conformance of historical accounting policies and practices with the standard. We continue to determine the impacts of the standard on our consolidated financial statements and continue to make progress on executing on a comprehensive change management project plan to implement the standard.

NOTE 3. ACQUISITIONS AND DISPOSITIONS

The ~~acquisitions in the section~~acquisition discussed below ~~are~~is not material to our condensed consolidated financial statements, ~~individually or in the aggregate and~~ therefore, disclosures of pro forma financial information have not been presented. The results of operations reflect the period of ownership of the acquired ~~businesses,~~business, business development projects and dispositions.

Environmental Services Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we acquired ~~three~~one environmental services ~~businesses (one of which was accounted for as an asset purchase),~~business located in ~~separate transactions,~~Toronto, Canada for approximately ~~$17~~$4 million. ~~These acquisitions expand~~This acquisition further expands our Covanta Environmental Solutions capabilities and client service offerings, and ~~allow~~allows us to direct additional non-hazardous profiled waste volumes into our EfW facilities, and therefore ~~are highly~~is synergistic with our existing business.

Green Investment Group Limited (“GIG”) Joint Venture

~~Table~~In December 2017, we entered into a strategic partnership with GIG, a subsidiary of ~~Contents~~

~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

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

~~China Investments~~

~~Prior~~Macquarie Group Limited, to ~~2016,~~develop EfW projects in the U.K. and Ireland. Our first investment with GIG, Covanta Europe Assets Limited, is structured as a 50/50 joint venture ("JV") between Covanta and GIG. As an initial step, we contributed 100% of our ~~interests~~Dublin EfW project ("Dublin EfW") into the JV, and GIG acquired a 50% ownership in ~~China included an 85% ownership of an EfW facility located in Jiangsu Province ("Taixing"),~~the JV for €136 million ($167 million). We retained a ~~49%~~50% equity interest in anthe JV and retained our role as operations and maintenance ("O&M") service provider to Dublin EfW. During the fourth quarter of 2017, we determined that the assets and liabilities associated with Dublin EfW ~~facility located~~met the criteria for classification as assets held for sale, but did not meet the criteria for classification as discontinued operations. As of December 31, 2017, the assets and liabilities associated with Dublin EfW were presented in ~~Sichuan Province~~our condensed consolidated balance sheets as current "Assets held for sale” and current "Liabilities held for sale.”.

In February 2018, GIG's investment in the JV closed and we received gross proceeds of $167 million ($98 million, net of existing restricted cash), which we used to repay borrowings under our Revolving Credit Facility. The sale resulted in our loss of a ~~40%~~controlling interest in Dublin EfW, which required the entity to be deconsolidated from our financial statements as of the sale date. For the six months ended June 30, 2018, we recorded a gain on the loss of a controlling interest of the business of $204 million which is included in "(Loss) gain on sale of assets" on our condensed consolidated statement of operations. The gain resulted from the excess of proceeds received plus the fair value of our non-controlling interest in Dublin EfW over our carrying value.

Our 50% equity interest in ~~Chongqing Sanfeng Covanta Environmental Industry Co., a company located~~the JV is accounted for under the equity method of accounting. As of June 30, 2018, our equity investment in the ~~Chongqing Municipality that~~JV of $160 million is ~~engaged~~included in "Other assets" on our condensed consolidated balance sheet. The fair value of our investment in the ~~business~~JV was determined by the fair value of ~~providing design~~the consideration received for the 50% acquired by GIG. There were no basis differences between the fair value of the acquired investment in the JV and ~~engineering, procurement, construction services and equipment sales for EfW facilities~~the carrying amounts of the underlying net assets in the JV as they were fair valued contemporaneously as of the sale date. For further information, see Note 11. Equity Method Investments.

China ~~as well as operating services for EfW facilities.~~Investment

~~During 2016,~~

On February 9, 2018 we ~~completed the exchange of~~sold our ~~ownership interests in China for a 15% ownership interest~~cost method investment in Chongqing Sanfeng Covanta Environmental Industrial Group, Co., Ltd ("Sanfeng Environment") and ~~subsequently sold approximately 90%~~received proceeds of $13 million. For the aforementioned ownership interest in Sanfeng Environment to a third-party, a subsidiary of CITIC Limited ("CITIC"), a leading Chinese industrial conglomerate and investment company, pursuant to agreements entered into in July 2015. As a result, during the yearsix months ended ~~December 31, 2016,~~June 30, 2018, we recorded a ~~pre-tax~~ gain ~~of $41 million. We received pre-tax proceeds of $105 million. The gain resulted from the excess of pre-tax proceeds over the cost-method book value of $70 million, plus $5 million of realized gains~~ on the ~~related cumulative foreign currency translation adjustment, that were reclassified out~~sale of ~~other comprehensive income.~~

In 2016, in connection with these transactions, we entered into foreign currency exchange collars and forwards to hedge against rate fluctuations that impacted the cash proceeds in U.S. dollar terms. For more information, see ~~Note 11. Derivative Instruments~~.

Subsequent to completing the exchange, Sanfeng Environment has made certain claims for indemnification under the agreement related to the condition of the facility in Taixing. During the three and nine months ended September 30, 2017, we recorded $0 and $6 million, ~~charge respectively, related to these claims,~~ which is included in ~~"gain (loss)~~"(Loss) gain on ~~asset sales"~~sale of assets" on our condensed consolidated statement of operations.

Table of September 30, 2017 and December 31, 2016, our remaining cost-method investment in Sanfeng Environment totaled $6 million and was included in our condensed consolidated balance sheet as a component of "Prepaid expenses and other current assets" and "Other assets," respectively.Contents

During the three months ended September 30, 2017, we entered into an agreement with CITIC to sell our remaining investment in Sanfeng Environment. This sale is expected to close within the next 12 months, subject to certain conditions. As such, the Company has reclassified its cost-method investment in our consolidated balance sheet as a component of "Prepaid expenses and other current assets" as of September 30, 2017. There were no impairment indicators related to our cost-method investment during the nine months ended September 30, 2017.COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

NOTE 4. EARNINGS PER SHARE (“EPS”) 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 computations, as calculated under the treasury stock method, include the weighted average number of shares of additional outstanding common stock issuable for stock options, restricted stock awards and restricted stock units whether or not currently exercisable. Diluted earnings per share does not include securities if their effect was anti-dilutive. Basic and diluted weighted average shares outstanding were as follows (in millions):



	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
Basic weighted average common shares outstanding	130	130	130	129
Dilutive effect of stock options, restricted stock and restricted stock units	—	—	2	—
Diluted weighted average common shares outstanding	130	130	132	129
Anti-dilutive stock options, restricted stock and restricted stock units excluded from the calculation of EPS	2	1	—	3

Three Months Ended September 30,
Nine Months Ended September 30,
2017
2016
2017
2016
Basic weighted average common shares outstanding 130
129
129
129
Dilutive effect of stock options, restricted stock and restricted stock units ⁽¹⁾
1
2
—
—
Diluted weighted average common shares outstanding 131
131
129
129

~~(1) Excludes the following securities because their inclusion would have been anti-dilutive:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock options —
1
1
1
Restricted stock —
—
1
1
Restricted stock units —
—
1
1

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

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

Equity

~~Dividends per Share~~

~~Dividends declared were as follows (in millions):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Declared $ 33
$ 33
$ 99
$ 99
Per Share $ 0.25
$ 0.25
$ 0.75
$ 0.75

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

The changes in accumulated other comprehensive loss are as follows (in millions):

Foreign Currency Translation Pension and Other Postretirement Plan Unrecognized Net Gain Net Unrealized (Loss) Gain On Derivatives Total
Balance at December 31, 2015 $ (34 ) $ 2
$ (2 ) $ (34 )
Other comprehensive income (loss) before reclassifications 6
—
(20 ) (14 )
Amounts reclassified from accumulated other comprehensive (loss) income (5 ) —
—
(5 )
Net current period comprehensive income (loss) 1
—
(20 ) (19 )
Balance at September 30, 2016 $ (33 ) $ 2
$ (22 ) $ (53 )

Balance at December 31, 2016 $ (41 ) $ 2
$ (23 ) $ (62 )
Other comprehensive income (loss) before reclassifications 16
—
2
18
Net current period comprehensive income 16
—
2
18
Balance at September 30, 2017 $ (25 ) $ 2
$ (21 ) $ (44 )



	Foreign Currency Translation			Pension and Other Postretirement Plan Unrecognized Net Gain		Net Unrealized (Loss) Gain On Derivatives			Total
Balance at December 31, 2016	$	(41	)	$	2	$	(23	)	$	(62	)
Other comprehensive income before reclassifications	12			—		3			15
Balance at June 30, 2017	$	(29	)	$	2	$	(20	)	$	(47	)

Balance at December 31, 2017	$	(24	)	$	2	$	(33	)	$	(55	)
Other comprehensive income before reclassifications	—			—		—			—
Amounts reclassified from accumulated other comprehensive income	2			—		27			29
Net current period comprehensive income	2			—		27			29
Balance at June 30, 2018	$	(22	)	$	2	$	(6	)	$	(26	)



Amount Reclassified from Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income Component	Six Months Ended June 30, 2018		Affected Line Item in the Condensed Consolidated Statement of Operations

Foreign currency translation	$	2	Gain (loss) on sale of assets ⁽¹⁾
Interest rate swap	27		Gain (loss) on sale of assets ⁽¹⁾
	29		Total before tax
	—		Tax benefit
Total reclassifications	$	29	Net of tax

⁽¹⁾ For additional information see, Note 3. Acquisitions and Dispositions - Green Investment Group Limited (“GIG”) Joint Venture and China Investment.

Amount Reclassified from Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income Component Nine Months Ended September 30, 2016 Affected Line Item in the Consolidated Statement of Operations

Foreign currency translation $ 5
Gain on asset sales
5
Total before tax
—
Tax benefit
Total reclassifications $ 5
Net of tax

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

NOTE 5. FINANCIAL INFORMATION BY BUSINESS SEGMENTS

We have one reportable segment which comprises our entire operating business. Prior to the first quarter 2018, our reportable segment, North America, ~~which is~~was comprised exclusively of waste and energy services ~~operations~~ located ~~primarily~~in North America. During the first quarter of 2018, we sold 50% of our Dublin EfW facility to Covanta Europe Assets Limited, our JV with GIG, which resulted in our loss of control, see Note 3. Acquisitions and Dispositions for further information. Subsequent to the sale, results from our equity method investment in the ~~United States~~JV and ~~Canada.~~our O&M contract to operate the Dublin EfW facility are now being reviewed by our Chief Operating Decision Maker on a consolidated basis with our North America results. Therefore, we now include the results of our international operations, which consist primarily of our interests in Dublin, in our one reportable segment. This new structure is consistent with how we establish our overall business strategy and assesses performance of our business. The results of our reportable segment are consistent with our consolidated results as ~~follows (in millions):~~presented on our condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017.

North America   All Other Total
Three Months Ended September 30, 2017
Operating revenue $ 429
$ —
$ 429
Depreciation and amortization expense 51
—
51
Impairment charges —
—
—
Operating income (loss) 48
(2 ) 46

Three Months Ended September 30, 2016
Operating revenue $ 421
$ —
$ 421
Depreciation and amortization expense 52
—
52
Impairment charges —
—
—
Operating income (loss) 62
(2 ) 60
North America
All Other ⁽¹⁾
Total
Nine Months Ended September 30, 2017
Operating revenue $ 1,257
$ —
$ 1,257
Depreciation and amortization expense 155
—
155
Impairment charges 1
—
1
Operating income (loss) 49
(6 ) 43

Nine Months Ended September 30, 2016
Operating revenue $ 1,235
$ 7
$ 1,242
Depreciation and amortization expense 155
—
155
Impairment charges 19
—
19
Operating income (loss) 55
(4 ) 51

NOTE 6. REVENUE

Revenue Recognition

Our EfW projects generate revenue from three primary sources: 1) fees charged for operating facilities or for receiving waste for disposal (waste and service revenue); 2) the sale of electricity and/or steam (energy revenue); and 3) the sale of ferrous and non-ferrous metals that are recovered from the waste stream as part of the EfW process (recycled metals revenue). We may also generate other operating revenue from the construction, expansion or upgrade of a facility, when a public-sector client owns the facility. Our customers for waste services or facility operations are principally public-sector entities, though we also market disposal capacity at certain facilities to commercial customers.

We also operate and/or have ownership positions in environmental services businesses, transfer stations and landfills (primarily for ash disposal) that are ancillary and complementary to our EfW projects and generate additional revenue from disposal or service fees.

Revenue is allocated to the performance obligations in a contract on a relative standalone selling price basis. To the extent that we sell the good or service related to the performance obligation separately in the same market, the standalone selling price is the observable price that we sell the good or service separately in similar circumstances and to similar customers. The fees charged for our services are generally defined in our service agreements and vary based on contract-specific terms.

Waste and Service Revenue

Service Fee

Service fee revenue is generated from the operations and maintenance services that we provide to owned and operated EfW facilities. We provide multiple waste disposal services aimed at operating and maintaining the facilities. Service fee revenue is generally based on an expected annual operating fee in relation to annual guaranteed waste processing and excess tonnage fees. The fees charged represent one performance obligation to operate and maintain each facility. Excess tonnage above a minimum specified in the contract represents variable consideration. We act as the agent in contracts for the sale of energy and metals in service fee facilities that we operate and accordingly record revenues net for those contracts.

Tip Fee

Tip fees are generated from the sale of waste disposal services at EfW facilities that we own. We earn a per ton “tipping fee”, generally under long term contractual obligations with our host community and contractual obligations with municipal and commercial waste customers. The tipping fee is generally subject to an annual escalation. The performance obligation in these agreements is to provide waste disposal services for tons of acceptable waste. Revenue is recognized when the waste is delivered to the facility.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

Energy Sales

~~NOTE 6. CONSOLIDATED DEBT~~

~~Consolidated debt~~Typical energy sales consist of: (a) electricity generation, (b) capacity and (c) steam. Our facilities primarily sell electricity either to utilities at contracted rates or at prevailing market rates in regional markets and in some cases, sell steam directly to industrial users. We sell a portion of electricity and other energy product outputs pursuant to contracts. As these contracts expire, we intend to sell an increasing portion of the energy output in competitive energy markets or pursuant to short-term contracts.

Recycled Metals Revenue

Recycled metals revenue represents the sale of recovered ferrous and non-ferrous metals to processors and end-users. The majority of our metals contracts are based on both an unspecified variable unit (i.e. tonnage) and variable forward market price index, while some contracts contain a fixed unit or fixed rate to form the basis of our overall transaction price. We recognize recycled metal revenue as it is ~~as follows (in millions):~~delivered to the customer.

Other Operating Revenue (Construction)

We generate additional revenue from the construction, expansion or upgrade of a facility, when a municipal client owns the facility and we provide the construction services. We generally use the cost incurred measure of progress for our construction contracts because it best depicts the transfer of control to the customer. Under the cost incurred measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

Disaggregation of revenue

A disaggregation of revenue from contracts with customers is presented on our condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017. See Note 5. Financial Information by Business Segments for a discussion of our reportable segment.

Performance Obligations and Transaction Price Allocated to Remaining Performance Obligations

The following summarizes our performance obligations, a description of how transaction price is allocated to future performance obligations and the practical expedients applied:

September 30, 2017
December 31, 2016
LONG-TERM DEBT:
Revolving credit facility (3.02% - 3.27%) $ 473
$ 343
Term loan, net (2.99%) 193
195
Credit Facilities Sub-total $ 666
$ 538
7.25% Senior notes due 2020 $ —
$ 400
6.375% Senior notes due 2022 400
400
5.875% Senior notes due 2024 400
400
5.875% Senior notes due 2025 400
—
  Less: deferred financing costs related to senior notes (16 ) (14 )
Senior Notes Sub-total $ 1,184
$ 1,186
4.00% - 5.25% Tax-exempt bonds due 2024 through 2045 $ 464
$ 464
  Less: deferred financing costs related to tax-exempt bonds (5 ) (5 )
Tax-Exempt Bonds Sub-total $ 459
$ 459
3.48% - 4.52% Equipment financing capital leases due 2024 through 2027 66
69
Total long-term debt $ 2,375
$ 2,252
Less: current portion (10 ) (9 )
Noncurrent long-term debt $ 2,365
$ 2,243
PROJECT DEBT:
North America project debt:
4.00% - 5.00% project debt related to service fee structures due 2017 through 2035 $ 68
$ 78
5.00% Union capital lease due 2017 through 2053 95
99
5.25% - 6.20% project debt related to tip fee structures due 2017 through 2020 10
16
Unamortized debt premium, net 4
4
  Less: deferred financing costs related to North America project debt (1 ) (1 )
Total North America project debt $ 176
$ 196
Other project debt:
Dublin senior loan due 2021 (5.72% - 6.41%)
⁽¹⁾
$ 257
$ 155
Less: debt discount related to Dublin senior loan (4 ) (6 )
Less: deferred financing cost related to Dublin senior loan (19 ) (18 )
Dublin senior loan, net $ 234
$ 131
Dublin junior loan due 2022 (9.23% - 9.73%) $ 67
$ 58
Less: debt discount related to Dublin junior loan —
(1 )
Less: deferred financing costs related to Dublin junior loan (1 ) (1 )
Dublin junior loan, net $ 66
$ 56
Total other project debt, net $ 300
$ 187
Total project debt $ 476
$ 383
Less: Current portion (31 ) (22 )
Noncurrent project debt $ 445
$ 361
TOTAL CONSOLIDATED DEBT $ 2,851
$ 2,635
        Less: Current debt (41 ) (31 )
TOTAL NONCURRENT CONSOLIDATED DEBT $ 2,810
$ 2,604



Revenue Type	Timing	Performance Obligations	Measure of Progress	Type	Practical Expedients
Service Fee	Over time	Operations/waste disposal	Time elapsed	Fixed & Variable	Constrained ⁽¹⁾ & Series ⁽²⁾
Tip Fee	Over time	Waste disposal	Units delivered	Fixed & Variable	Right to invoice
Energy	Over time	Energy	Units delivered	Fixed & Variable	Right to invoice & Series ⁽²⁾
		Capacity	Time elapsed
		Steam	Units delivered
Metals	Point in time	Sale of ferrous & non-ferrous metals	Units delivered	Variable	Less than 1 year
Other (Construction)	Over time	Construction services	Costs incurred	Fixed & Variable	N/A

(1) The amount of variable consideration that is included in the transaction price may be constrained, and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. We estimate our variable service fee using the expected value method.
(2) Service Fee and Energy contracts have been determined to have an annual and monthly series, respectively.

⁽¹⁾~~Reflects hedged fixed rates.~~

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

ASC 606 requires disclosure of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of June 30, 2018. The guidance provides certain conditions (identified as "practical expedients") that limit this disclosure requirement. We have contracts that meet the following practical expedients provided by ASC 606:

~~Credit Facilities~~


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).


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 subsidiary, Covanta Energy, has $1.2 billion~~

The following table shows our remaining performance obligations which primarily consists of the fixed consideration contained in ~~senior secured credit facilities consisting~~our contracts as of ~~a $1.0 billion revolving credit facility, expiring 2019 through 2020, (the “Revolving Credit Facility”)~~June 30, 2018 (dollars in millions):



	Total
Total Remaining performance obligation	$	5,315
Percentage expected to be recognized:
Remainder of 2018	6		%
2019	10		%

Contract Balances

The following table reflects the balance in our contract assets, which we classify as “Accounts receivable unbilled” and ~~a $200 million term loan due 2020 (the “Term Loan”) (collectively referred to~~present net in Accounts receivable, and our contract liabilities, which we classify as ~~the "Credit Facilities").~~

~~Revolving Credit Facility~~

~~As of September 30, 2017, we had unused capacity under the Revolving Credit Facility as follows~~deferred revenue and present in “Accrued expenses and other current liabilities” in our condensed consolidated balance sheet (in millions):



	June 30, 2018		December 31, 2017
Unbilled receivables	$	15	$	13
Deferred revenue	$	16	$	14

Total
Direct Borrowings as of Outstanding Letters of Credit as of
Unused Capacity
as of
Credit Facility
Expiring ⁽¹⁾
September 30, 2017 September 30, 2017 September 30, 2017
Revolving Credit Facility $ 1,000
2020 $ 473
$ 191
$ 336

⁽¹⁾ ~~The Revolving Credit Facility consists of two tranches; Tranche A ($950 million), which expires~~For the six months ended June 30, 2018, revenue recognized that was included in ~~2020, and Tranche B ($50 million), which expires in March 2019.~~

~~Repayment Terms~~

~~As of September 30, 2017,~~deferred revenue on our condensed consolidated balance sheet at the ~~Term Loan has mandatory remaining amortization payments of approximately $1 million in 2017, $5 million in both~~beginning of the ~~years 2018~~period totaled $4 million.

Accounts receivable are recorded when the right to consideration becomes unconditional and ~~2019 and $181 million in 2020.~~we typically receive payments from customers monthly. The ~~Credit Facilities are pre-payable at par at our option at any time.~~

~~Guarantees and Security~~

~~The Credit Facilities are guaranteed by us and by certain~~timing of our ~~subsidiaries. The subsidiaries that are party to the Credit Facilities agreed to secure all~~receipt of the obligations under the Credit Facilities by granting, for the benefit of secured parties, a first priority lien on substantially all of their assets, to the extent permitted by existing contractual obligations; a pledge of substantially all of the capital stock of each ofcash from construction projects is generally based upon our ~~domestic subsidiaries and 65% of substantially all the capital stock of each of our foreign subsidiaries which are directly owned, in each case to the extent not otherwise pledged.~~

~~Credit Agreement Covenants~~

~~The loan documentation governing the Credit Facilities contains various affirmative and negative covenants,~~reaching completion milestones as well as financial maintenance covenants (financial ratios), that limit our ability to engage in certain types of transactions. We are in compliance with all of the affirmative and negative covenants under the Credit Facilities as of September 30, 2017.

~~5.875% Senior Notes due 2025 (the "5.875% Notes")~~

In March 2017, we sold $400 million aggregate principal amount of 5.875% Senior Notes due July 2025. Interest on the 5.875% Notes is payable semi-annually on January 1 and July 1 of each year, which commenced on July 1, 2017, and the 5.875% Notes will mature on July 1, 2025 unless earlier redeemed or repurchased. Net proceeds from the sale of the 5.875% Notes were approximately $393 million, consisting of gross proceeds of $400 million net of approximately $7 million in offering expenses. On April 3, 2017, we used a portion of the net proceeds of the 5.875% Notes offering to fund the redemption of the 7.25% Senior Notes due 2020. For additional information see ~~Redemption of 7.25% Senior Notes due 2020~~ ~~below~~.

The 5.875% Notes are senior unsecured obligations, ranking equally in right of payment with any of the current and future senior unsecured indebtedness of Covanta Holding Corporation. The 5.875% Notes rank junior to our existing and future secured indebtedness, including any guarantee of indebtedness under the Credit Facilities. The 5.875% Notes are not guaranteed by any of our subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of our subsidiaries.

~~The 5.875% Notes are subject to redemption at our option, at any time on or after July 1, 2020, in whole or in part, at the redemption prices~~ set forth in the ~~prospectus supplement, plus accrued~~applicable contracts, and ~~unpaid interest. At any time prior~~the timing and size of these milestone payments can result in material working capital variability between periods. We had no asset impairment charges related to ~~July 1, 2020,~~contract assets in the period.

NOTE 7. STOCK-BASED AWARD PLANS

During the six months ended June 30, 2018, we ~~may redeem up to 35%~~awarded certain employees grants of 1,195,418 restricted stock units ("RSUs"). The RSUs will be expensed over the requisite service period. The terms of the ~~original principal amount~~RSUs include vesting provisions based solely on continued service. If the service criteria are satisfied, the RSUs will generally vest during March of 2019, 2020, and 2021.

During the six months ended June 30, 2018, we awarded certain employees 385,464 performance based RSUs of which 50% will vest based upon our cumulative Free Cash Flow per share target over a three year performance period and the other 50% will vest based on a total shareholder return ("TSR") against metrics consistent with market practices and our peers with vesting determined by our relative TSR percentile rank versus the companies in our peer group.

On May 3, 2018, we awarded 13,158 shares of restricted stock and 75,659 RSUs for annual director compensation. During the six months ended June 30, 2018, we awarded 15,981 RSUs, for quarterly director fees for certain of our directors who elected to receive RSUs in lieu of cash payments. We determined the service vesting condition of these restricted stock awards and RSU's to be non-substantive and, in accordance with accounting principles for stock compensation, recorded the entire fair value of the ~~5.875% Notes with~~awards as compensation expense on the proceeds of certain equity offerings at a redemption price of 105.875% of the principal amount of the 5.875% Notes plus accrued and unpaid interest. At any time prior to July 1, 2020, we may also redeem the 5.875% Notes, in whole but not in part, at a price equal to 100% of the principal amount of the 5.875% Notes, plus accrued and unpaid interest and a “make-whole premium.” The occurrence of specific kinds of changes in control will be a triggering event requiring us to offer to purchase from the holders all or a portion of the 5.875% Notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. In addition, certain asset dispositions would be triggering events that may require us to use the proceeds from those asset dispositions to make an offer to purchase the 5.875% Notes at 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase if such proceeds are not otherwise used within 365 days to repay indebtedness or to invest or commit to invest such proceeds in additional assets related to our business or capital stock of a restricted subsidiary.grant date.

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

~~Redemption of 7.25% Senior Notes due 2020 (7.25% Senior Notes)~~

~~On April 3, 2017, we redeemed our 7.25% Senior Notes due 2020 using a portion of net proceeds from the issuance of the 5.875% Senior Notes due 2025 and borrowings under our credit facility.~~ During the ~~nine~~six months ended ~~September~~June 30, ~~2017, as a result~~2018, we withheld 249,471 shares of ~~the redemption, we recorded a prepayment charge of $9 million and a write-off of the remaining deferred financing costs of $4 million recognized~~our common stock in ~~our condensed consolidated statements of operations as a loss on extinguishment of debt.~~connection with tax withholdings for vested stock awards.

~~Other Non-current Liabilities~~

As of September 30, 2017, the Dublin convertible preferred instrument of $102 million (€87 million) was included as a component of "Other noncurrent liabilities" in our condensed consolidated balance sheet.

~~Capitalized Interest~~

~~Interest expense paid and costs amortized to interest~~Compensation expense related to ~~project financing are capitalized during the construction and start-up phase of the project. Total interest expense capitalized~~our stock-based awards was as follows (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Share based compensation expense	$	5	$	6	$	14	$	11

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Capitalized interest $ 12
$ 7
$ 32
$ 20

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

~~NOTE 7. INCOME TAXES~~

We have recorded our interim tax provision based upon our estimated annual effective tax rate ("EAETR") and account for tax effects of discrete events in the period in which they occur. We review the EAETR on a quarterly basis as projections are revised and laws are enacted. The effective tax rate ("ETR") was 6% and (50)% for the nine months ended September 30, 2017 and 2016, respectively. The net change in the ETR was primarily attributable to the increase of foreign loss which cannot be benefited, the discrete tax adjustments attributable to non-qualified stock options, which expired in the nine months ended September 30, 2017 and changes in the reserve for uncertain tax positions.

NOTE 8. SUPPLEMENTARY INFORMATION

Pass through costs

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

Pass through costs were as follows (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Pass through costs	$	12	$	13	$	26	$	23

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Pass through costs $ 14
$ 9
$ 37
$ 28

Other operating expenses, net

Insurance Recoveries

~~Plymouth Energy-from-Waste Facility~~

In May 2016, our Plymouth energy-from-waste facility experienced a turbine generator failure. Damage to the turbine generator was extensive and operations at the facility were suspended promptly to assess the cause and extent of damage. The facility is capable of processing waste without utilizing the turbine generator to generate electricity, and we resumed waste processing operations in early June of 2016. The facility resumed generating electricity early in the first quarter of 2017 after the generator and other damaged equipment were replaced.

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~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

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

Fairfax County Energy-from-Waste Facility

In February 2017, our Fairfax County energy-from-waste facility ~~located in Lorton, Virginia~~ experienced a fire in the front-end receiving portion of the facility. During the first quarter of 2017, we completed our evaluation of the impact of this event and recorded an immaterial asset impairment, which we have since recovered from insurance proceeds. ~~We expect the~~The facility ~~to resume~~resumed operations in December 2017. We expect receipt of remaining insurance recoveries for both property loss and business interruption ~~to continue into~~in the ~~first half~~remainder of 2018. ~~The overall impact of the fire, net of insurance, on financial results in 2017 will be impacted by the timing of receipt of insurance recoveries.~~

The cost of repair or replacement of assets and business interruption losses ~~for the above matters are~~is insured under the terms of applicable insurance policies, subject to deductibles. We recorded insurance gains, as a reduction to "Other operating expense, net," in our condensed consolidated statement of operations as follows (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Insurance gains for property and clean-up costs, net of impairment charges	$	—	$	2	$	7	$	3
Insurance gains for business interruption costs, net of costs incurred	$	1	$	17	$	8	$	18

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Insurance gains for property and clean-up costs, net of impairment charges $ 1
$ —
$ 4
$ —
Insurance gains for business interruption costs, net of costs incurred $ 1
$ —
$ 19
$ —

~~HennepinCounty Legal Settlement~~

On September 25, 2017, we settled a dispute with Hennepin County, Minnesota regarding extension provisions in our service contract to operate the Hennepin Energy Recovery Center. We received $8 million in connection with the settlement and will continue to operate the facility through March 2018. During the three months ended September 30, 2017, we recorded a gain on settlement of $8 million as a reduction of "Other operating expense, net" in our consolidated statement of operations.

~~Impairment charges~~

We are party to a joint venture that was formed to recover and recycle metals from EfW ash monofills in North America. During the nine months ended September 30, 2016, due to operational difficulties and the decline in the scrap metals market, a valuation of the entity was conducted. As a result, we recorded a net impairment of our investment in this joint venture of $3 million, pre-tax, which represents our portion of the carrying value of the entity in excess of the fair value. Such amount was calculated based on the estimated liquidation value of the tangible equipment utilizing Level 3 inputs. For more information regarding fair value measurements, see ~~Note 10. Financial Instruments~~.

In March 2016, we exercised an early termination option available under the steam sale agreement at our Pittsfield EfW facility that would have been effective in March 2017. Upon termination of the steam agreement, we intended to cease operations at the Pittsfield facility. As a result, during the nine months ended September 30, 2016, we recorded a non-cash impairment charge of $13 million, pre-tax, which was calculated based on the estimated cash flows for this facility during its remaining operations utilizing Level 3 inputs. For more information regarding fair value measurements, see ~~Note 10. Financial Instruments.~~ In October 2016, we withdrew our termination notice. The City of Pittsfield has agreed to fund upgrades to the facility and the State of Massachusetts will provide energy tax credits, both of which will serve to improve the economics of the facility. In addition, we will continue to sell steam generated by the facility under an amended agreement.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

Impairment Charges

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

NOTE 9. INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted and instituted fundamental changes to the taxation of multinational corporations. As a result, we recorded a provisional tax charge at December 31, 2017 of $21 million related to the mandatory transition tax and a provisional tax benefit of $204 million related to the re-measurement of deferred tax assets and liabilities as of December 31, 2017. We recorded a provisional amount because the calculation of the total post-1986 earnings and profits ("E&P") for our foreign subsidiaries is not completed, and the amount of foreign E&P held in cash and other specified assets to which the transition tax applies, is not finalized. In accordance with current SEC guidance, we will report the final impact amounts in the reporting period in which the accounting is completed, which will not exceed one year from the date of enactment of the Act.

As of June 30, 2018, we have not completed the accounting for any of the tax effects of the tax reform described above and there have been no material changes to our estimated amounts. Accordingly, there has been no change to the provisional amounts previously recorded and no impact to the effective tax rate for the period.

Given the complexity of the global intangible low-taxed income ("GILTI") provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. Our accounting policy election with respect to the new GILTI Tax rules will depend, in part, on analyzing our global income to determine whether we can reasonably estimate the tax impact. While we have included an estimate of GILTI in our estimated effective tax rate for 2018, we have not completed our analysis and have not determined which method to elect. Adjustments related to the amount of GILTI tax recorded in our condensed consolidated financial statements may be required based on the outcome of this election.

We record our interim tax provision based upon our estimated annual effective tax rate ("EAETR") and account for tax effects of discrete events in the period in which they occur. We review the EAETR on a quarterly basis as projections are revised and laws are enacted. The effective tax rate ("ETR") was (23)% and 4% for the six months ended June 30, 2018 and 2017, respectively. The decrease in the ETR is primarily due to the combined effects of (i) the federal tax rate reduction as the result of the enactment of the Act; (ii) no income tax associated with the gain on the sale of 50% interest in the joint venture with GIG; (iii) the change in the mix of earnings and (iv) the discrete tax benefit attributable to a state audit settlement.

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

~~NOTE 9. STOCK-BASED AWARD PLANS~~

During the nine months ended September 30, 2017 we awarded certain employees grants of 810,527 shares of restricted stock and 78,636 restricted stock units ("RSUs"). The restricted stock awards and RSUs will be expensed over the requisite service period. The terms of the restricted stock awards and the RSUs include vesting provisions based solely on continued service. If the service criteria are satisfied, the restricted stock awards and RSUs will generally vest during March of 2018, 2019, and 2020.

Additionally, during the nine, months ended September 30, 2017, we awarded certain employees grants of 440,070 performance based RSUs that will vest based upon the Company’s cumulative Free Cash Flow per share over a three year performance period.

In May 2017, we awarded 14,286 shares of restricted stock and 82,144 RSUs for annual director compensation. Additionally, on June 15, 2017 and September 15, 2017 we awarded 4,701 and 9,367 shares of RSUs, respectively, for quarterly director fees for certain of our directors who elected to receive RSUs in lieu of cash payments. We determined the service vesting condition of these restricted stock awards and restricted stock units 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 months ended September 30, 2017, we withheld 235,066 shares of our common stock in connection with tax withholdings for vested stock awards.~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Share based compensation expense $ 5
$ 4
$ 16
$ 13

~~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, 2017

Unrecognized stock-
based compensation

Weighted-average years
to be recognized
Restricted stock awards $ 11 1.5
Restricted stock units $ 11 1.8

NOTE 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 ~~cash and cash equivalents, restricted funds,~~ marketable securities, ~~and accounts receivable,~~ the carrying value of these amounts is a reasonable estimate of their fair value. ~~The fair value of restricted funds held in trust is based on quoted market prices of the investments held by the trustee.~~

Fair values for long-term debt and project debt are determined using quoted market prices (Level 1).

The fair value ~~for~~of our interest rate swaps ~~was~~are determined by ~~obtaining quotes from two counterparties (one is a holder of~~applying the ~~long position and the other is~~Euribor forward curve observable in the ~~short) and extrapolating those across~~market to the ~~long and short notional amounts.~~contractual terms of our floating to fixed rate swap agreements. The fair value of the interest rate swaps ~~was~~is adjusted to reflect counterparty risk of non-performance, and ~~was~~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 fair value of our foreign currency hedge was determined by obtaining quotes from two counterparties and is based on market accepted option pricing methodology which utilizes inputs such as the currency spot rate as of the balance sheet date, the strike price of the options and volatility.

~~Table of Contents~~

~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

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

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~~June 30, ~~2017.~~2018. Such amounts have not been comprehensively revalued for purposes of these financial statements and current estimates of fair value may differ significantly from the amounts presented herein.

The following table presents information about the fair value measurement of our assets and liabilities as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~

Financial Instruments Recorded at Fair Value on a Recurring Basis: Fair Value Measurement Level September 30, 2017
December 31, 2016
(In millions)
Assets:
Cash and cash equivalents:
Bank deposits and certificates of deposit 1 $ 33
$ 79
Money market funds 1 4
5
Total cash and cash equivalents: 37
84
Restricted funds held in trust:
Bank deposits and certificates of deposit 1 22
12
Money market funds 1 27
36
U.S. Treasury/Agency obligations ⁽¹⁾
1 9
14
State and municipal obligations 1 28
46
Commercial paper/Guaranteed investment contracts/Repurchase agreements 1 2
2
Total restricted funds held in trust: 88
110
Investments — mutual and bond funds⁽²⁾
1 2
2
Derivative asset — energy hedges ⁽³⁾
2 5
3
Total assets: $ 132
$ 199
Liabilities:
Derivative liability — energy hedges ⁽⁴⁾
2 $ —
$ 1
Derivative liability — interest rate swaps ^{(4), (5)}
2 19
20
Total liabilities: $ 19
$ 21

~~The following financial instruments are recorded at their carrying amount~~2017 (in millions):

As of September 30, 2017 As of December 31, 2016
Financial Instruments Recorded at Carrying Amount:
Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value
Assets:
Accounts receivable ⁽⁶⁾
$ 326
$ 326
$ 333
$ 333
Liabilities:
Long-term debt $ 2,375
$ 2,383
$ 2,252
$ 2,237
Project debt $ 476
$ 481
$ 383
$ 387



Financial Instruments Recorded at Fair Value on a Recurring Basis:	Fair Value Measurement Level	June 30, 2018		December 31, 2017
Assets:
Investments — mutual and bond funds⁽¹⁾	1	$	2	$	2
Total assets:		$	2	$	2
Liabilities:
Derivative liability — energy hedges ⁽²⁾	2	$	6	$	5
Derivative liability — interest rate swaps included in liabilities held for sale	2	—		7
Total liabilities:		$	6	$	12


(1)	~~The U.S. Treasury/Agency obligations in restricted funds held in trust are primarily comprised of Federal Home Loan Mortgage Corporation securities at fair value.~~


~~(2)~~	Included in other noncurrent assets in the condensed consolidated balance sheets.


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


~~(4)~~	~~Included in accrued expenses and other current liabilities in the condensed consolidated balance sheets.~~


~~(5)~~	~~Included in other noncurrent liabilities in the condensed consolidated balance sheets.~~


~~(6)~~	~~Includes $1 million of noncurrent receivables recorded in "Other assets" in the condensed consolidated balance sheets as September 30, 2017 and December 31, 2016.~~

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



	As of June 30, 2018				As of December 31, 2017
Financial Instruments Recorded at Carrying Amount:	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Liabilities:
Long-term debt	$	2,305	$	2,299	$	2,349	$	2,371
Project debt	$	161	$	165	$	174	$	179
Project debt included in liabilities held for sale	$	—	$	—	$	510	$	510

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.

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COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

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, and the asset's fair value is determined to be less than its carrying value. ~~See~~ ~~Note 8. Supplementary Information- Impairment charges~~ ~~for additional information.~~

NOTE 11. EQUITY METHOD INVESTMENTS

We hold a 50% equity interest in Covanta Europe Assets Limited, our JV with GIG, see Note 3. Acquisitions and Dispositions. The equity in net income from unconsolidated investments from the JV since the closing date was $2 million for both the three and six months ended June 30, 2018.

We serve as the O&M service provider for the JV, a related party, under market competitive terms. For the period from February 12, 2018 through June 30, 2018 we recognized $12 million in revenues related to this agreement and have a receivable of $10 million as of June 30, 2018.

~~Table of Contents~~

~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

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

NOTE ~~11.~~12. DERIVATIVE INSTRUMENTS

The following disclosures summarize the effect of changes in fair value related to those derivative instruments not designated as hedging instruments on the condensed consolidated statements of operations (in millions):

Amount of Gain or (Loss) Recognized In Income on Derivatives
Effect on Income of Derivative Instruments Not Designated As Hedging Instruments
Location of Gain or (Loss)
Recognized in Income on
Derivatives
Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Foreign currency Other income (expense), net $ —
$ (1 ) $ —
$ (2 )
Effect on income of derivative instruments not designated as hedging instruments $ —
$ (1 ) $ —
$ (2 )

~~Foreign Exchange Risk~~

~~During 2016, in order to hedge the risk of adverse foreign currency exchange rate fluctuations impacting the sale proceeds from our equity transfer agreement in China (See~~ ~~Note 3. Acquisitions and Dispositions~~), we entered into foreign currency exchange forwards with two financial institutions, covering approximately $100 million of notional, to protect against rate fluctuations pending the close of the sale of our ownership interest to CITIC. The foreign currency forwards were accounted for as derivative instruments and, accordingly, were recorded at fair value quarterly with any change in fair value recognized in our condensed consolidated statements of operations as "Other expense, net." As of December 31, 2016, we received $105 million of gross sale proceeds relating to the aforementioned sale of our ownership interests to CITIC and therefore, settled or canceled the remaining foreign currency exchange derivatives related to this hedged transaction, resulting in a current asset balance of zero. During the nine months ended September 30, 2016, cash provided by foreign currency exchange settlements totaled $5 million, and was included in net cash used in investing activities on our condensed consolidated statement of cash flows.

We have entered into foreign currency forwards to manage foreign currency exchange rate fluctuations associated with a series of fixed payments to be made by an international subsidiary through the end November 2017. These foreign currency forwards are accounted for as derivative instruments at fair value in our consolidated balance sheet with any changes in fair value recognized in our consolidated statements of operations as "Other expense, net." This derivative instrument was not material to our consolidated statement of operations nor was it material to our condensed consolidated balance sheet as of September 30, 2017.

Energy Price Risk

Following the expiration of certain long-term energy sales contracts, we may have exposure to market risk, and therefore revenue fluctuations, in energy markets. We have entered into contractual arrangements that will mitigate our exposure to short-term volatility through a variety of hedging techniques and will continue to do so in the future. Our efforts in this regard will involve only mitigation of price volatility for the energy we produce and will not involve taking positions (either long or short) on energy prices in excess of our physical generation. The amount of energy generation for which we have hedged on a forward basis under agreements with various financial institutions as of ~~September~~June 30, ~~2017~~2018 is indicated in the following table (in millions):



Calendar Year		Hedged MWh
2018		1.4
2019		1.9
Total		3.3

Calendar Year Hedged MWh
2017 0.7
2018 2.7
2019 0.4
Total 3.8

As of ~~September~~June 30, ~~2017,~~2018, the net fair value of the energy derivatives ~~of $5 million, pre-tax,~~ was ~~recorded as a $5 million "prepaid and other current asset" on our condensed consolidated balance sheet.~~$6 million. The effective portion of the change in fair value was recorded as a component of AOCI. As of ~~September~~June 30, ~~2017,~~2018, the amount of hedge ineffectiveness was not material.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, cash provided by and used in energy derivative settlements of ~~$16~~$8 million and ~~zero,~~$15 million, respectively, was included in net cash provided by operating activities on our condensed consolidated statement of cash flows.

During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, cash provided by and used in energy derivative settlements of ~~$26~~$12 million and zero, respectively, was included in the change in net cash provided by operating activities on our condensed consolidated statement of cash flows.

Interest Rate Swaps

In order to hedge the risk of adverse variable interest rate fluctuations associated with the ~~Dublin~~ senior secured term loan previously held by Dublin EfW, we ~~have~~ entered into floating to fixed rate swap agreements with various financial institutions ~~terminating between 2017 and 2021,~~

~~Table~~to hedge the variable interest rate fluctuations associated with the floating rate portion of ~~Contents~~

~~COVANTA HOLDING CORPORATION AND SUBSIDIARIES~~

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

~~denominated~~the loan, expiring in ~~Euros, for the full €250 million loan amount. This~~2032. The interest rate swap iswas designated as a cash flow hedge which iswas recorded at fair value with changes in fair value recorded as a component of AOCI. The unrealized loss was included within "(Loss) gain on sale of assets" upon deconsolidation.

As of ~~September 30,~~December 31, 2017, the fair value of the interest rate swap derivative of ~~$19~~$7 million, pre-tax, was recorded as a $5 million and $14 million current and noncurrent liability, respectively on our consolidated balance sheets. As of December 31, 2016, the fair value of the interest rate swap derivative of $20 million, pre-tax, was recorded as a $2 million and $18 million current and noncurrent liability, respectively on our consolidated balance sheets. There was an immaterial amount of ineffectiveness recognized in our condensed consolidated statements of operations as a component of "Interest expense, net" during the three and nine months ended September 30, 2017 and September 30, 2016.

~~NOTE 12. 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 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, 2017 and December 31, 2016, accrualswithin "Liabilities held for ~~our loss contingencies recorded in "Accrued expenses and other current liabilities"~~sale" in our consolidated balance ~~sheets were approximated $17 million~~sheet and ~~$11 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.

~~We may be identified, along with other entities,~~was subsequently sold 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 condensed consolidated results of operations, financial position or cash flows.

~~Lower Passaic River Matter.~~ In August 2004, the United States 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, referred to as “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. On March 3, 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~~transaction with GIG. See Note 3. Acquisitions and long-term monitoring. 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.Dispositions.

~~Tulsa Matter.~~ In January 2016, we were informed by the office of the United States Attorney for the Northern District of Oklahoma (“U.S. Attorney”) that our subsidiary, Covanta Tulsa Renewable Energy LLC, is the target of a criminal investigation being conducted by the EPA. We understand that the EPA plans to allege improprieties in the recording and reporting of emissions data during an October 2013 incident involving one of the three municipal waste combustion units at our Tulsa, Oklahoma facility. We believe that our operations in Tulsa were and are in compliance with existing laws and regulations in all material respects. While we can provide no assurance as to the outcome of this matter, we do not believe that the investigation or any issues arising therefrom will have a material adverse effect on our consolidated results of operations, financial position or cash flows.

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

~~Other Matters~~

~~Durham-York Contractor Arbitration~~NOTE 13. CONSOLIDATED DEBT

Consolidated debt is as follows (in millions)



	June 30, 2018			December 31, 2017
LONG-TERM DEBT:
Revolving credit facility (4.28% - 4.53%)	$	375		$	445
Term loan, net (3.82%)	189			191
Credit Facilities subtotal	564			636
Senior Notes, net of deferred financing costs	1,185			1,185
Tax-Exempt Bonds, net of deferred financing costs	489			459
Equipment financing capital leases	67			69
Total long-term debt	2,305			2,349
Less: Current portion	(10		)	(10		)
Noncurrent long-term debt	$	2,295		$	2,339
PROJECT DEBT:
Total project debt, net of deferred financing costs and unamortized debt premium	$	161		$	174
Less: Current portion	(24		)	(23		)
Noncurrent project debt	$	137		$	151
TOTAL CONSOLIDATED DEBT	$	2,466		$	2,523
Less: Current debt	(34		)	(33		)
TOTAL NONCURRENT CONSOLIDATED DEBT	$	2,432		$	2,490

Our subsidiary, Covanta Energy, has a senior secured credit facility consisting of a revolving credit facility (the “Revolving Credit Facility”) and a term loan (the “Term Loan”) (collectively referred to as the "Credit Facilities"). The nature and terms of our Credit Facilities, other long-term and project debt are ~~seeking to resolve outstanding disputes with~~described in detail in Note 10. Consolidated Debt in our ~~primary contractor~~Annual Report on Form 10-K for the Durham-York construction project regarding (i) claims by the contractor for change orders and other expense reimbursement and (ii) claims by us for charges and liquidated damages for project completion delays. Our contract with this contractor contemplates binding arbitration to resolve these disputes, whichyear ended December 31, 2017.

Revolving Credit Facility

As of June 30, 2018, we expect may conclude in 2017. While we do not expect resolution of these disputes to have a material adverse impact on our financial position, it could be material to our results of operations and/or cash flows in any given accounting period.

~~China Indemnification Claims~~

~~Subsequent to completing the exchange of our project ownership interests in China for a 15% ownership interest in Sanfeng Environment, Sanfeng Environment made certain claims for indemnification~~had unutilized capacity under the ~~agreement related to the condition of the facility in Taixing. For additional information, see Note 3. Acquisitions and Dispositions.~~

~~Other Commitments~~

~~Other commitments as of September 30, 2017 were~~Revolving Credit Facility as follows (in millions):

Commitments Expiring by Period

Total
Less Than
One Year

More Than
One Year
Letters of credit issued under the Revolving Credit Facility $ 191
$ 11
$ 180
Letters of credit - other 69
69
—
Surety bonds 202
—
202
Total other commitments — net $ 462
$ 80
$ 382



	Total Facility Commitment		Expiring ⁽¹⁾	Direct Borrowings		Outstanding Letters of Credit		Unutilized Capacity
Revolving Credit Facility	$	1,000	2020	$	375	$	183	$	442

⁽¹⁾The 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.

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~~consists of two tranches; Tranche A ($950 million), which expires in 2020, and Tranche B ($50 million), which expires in March 2019.

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 are in compliance with all of the affirmative and negative covenants under the Credit Facilities as ~~either additional term loans or as revolving loans.~~of June 30, 2018.

Virginia Tax-Exempt Bonds

In June 2018, we entered into a loan agreement with the Virginia Small Business Financing Authority under which they agreed to issue up to $50 million in aggregate principal amount of tax-exempt Solid Waste Disposal Bonds and loan the proceeds to us for the purpose of funding certain capital expenditures at our facilities in Virginia and to pay related costs of issuance (the “Virginia Bonds”). An initial $30 million in principal amount of Virginia Bonds were issued (the “Series 2018 Virginia Bonds”) with $20 million reserved for potential future issuance at our option. The ~~surety bonds listed in the table above relate primarily to construction~~Series 2018 Virginia Bonds bear interest at a fixed rate of 5.00%, payable semi-annually on January 1 and ~~performance obligations and support for other obligations, including closure requirements~~July 1, of ~~various energy projects when such projects cease operating. Were these bonds to be drawn upon, we would~~each year, beginning January 1, 2019. The Series 2018 Virginia Bonds have a ~~contractual obligation~~legal maturity of January 1, 2048 and are subject to ~~indemnify the surety company.~~

~~We have certain contingent~~a mandatory tender for purchase on July 1, 2038. The Virginia Bonds are senior unsecured obligations ~~related to the 6.375% Notes due 2022, 5.875% Notes due 2024, 5.875% Notes due 2025~~of Covanta Holding Corporation and ~~Tax-Exempt Bonds. Holders may require us to repurchase the instruments if a fundamental change occurs. For specific criteria related to the redemption features of the 5.875% Notes due 2025, see~~ ~~Note 6. Consolidated Debt.~~ ~~For specific criteria related to the redemption features of the 6.375% Notes and 5.875% Notes due 2024, see~~ ~~Item 8. Financial Statements And Supplementary Data — Note 11. Consolidated Debt~~ are not guaranteed by any of our ~~Annual Report on Form 10-K.~~subsidiaries.

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 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 energy-from-waste 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.

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

~~Benefit Obligations - Defined Contribution Plans~~

Substantially all of our employees in the United States are eligible to participate in defined contribution plans we sponsor. Our costs related to defined contribution plans were as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Costs related to defined contribution plans $ 4
$ 5
$ 13
$ 13

~~Dublin EfW Facility~~

In connection with the financing of the Dublin EfW facility, Covanta Energy has made commitments for contingent support as follows: (1) lending commitments up to €25 million to fund working capital shortfalls in the project company under certain circumstances during operations; and (2) up to €75 million commitment in the aggregate to provide support payments to the project company, under certain circumstances, in the event waste revenue falls below minimum levels (set far below anticipated levels).

~~New York City Waste Transport and Disposal Contract~~

In 2013, New York City awarded us a contract to handle waste transport and disposal from two marine transfer stations located in Queens and Manhattan. Service for the Manhattan marine transfer station is expected pending approval from New York City. As of September 30, 2017, we expect to incur approximately $30 million of additional capital expenditures, primarily for transportation equipment.

NOTE ~~13. SUBSEQUENT EVENTS~~14. COMMITMENTS AND CONTINGENCIES

~~During October~~

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 June 30, 2018 and December 31, 2017, accruals for our loss contingencies recorded in "Accrued expenses and other current liabilities" in our condensed consolidated balance sheets were $11 million and $18 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 ~~activities necessary~~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.

We may be identified, along with other entities, as being among parties potentially responsible for contribution to ~~ready~~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 ~~Dublin energy-from-waste facility were considered complete~~volumetric share of waste, the total cost of remediation, and the ~~facility was placed-in-service.~~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.

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

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 ~~MD&A is intended to help the reader understand the~~proceedings will not have a material adverse effect on our condensed consolidated results of operations, ~~and~~ financial ~~condition of Covanta Holding Corporation and its subsidiaries; ("Covanta"~~position or cash flows.

Lower Passaic River Matter. In August 2004, the ~~"Company"~~United States Environmental Protection Agency (the “EPA”) ~~for the three and nine months ended September 30, 2017. The term "Covanta Energy" refers to~~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 (“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.

Tulsa Matter. In January 2016, we were informed by the office of the United States Attorney for the Northern District of Oklahoma (“U.S. Attorney”) that our subsidiary, Covanta Tulsa Renewable Energy LLC, is the target of a criminal investigation being conducted by the EPA. We understand that the EPA planned to allege improprieties in the recording and ~~its subsidiaries. The~~reporting of emissions data during an October 2013 incident involving one of the three municipal waste combustion units at our Tulsa, Oklahoma facility. We believe that our operations in Tulsa were and are in compliance with existing laws and regulations in all material respects. While we can provide no assurance as to the outcome of this matter, we do not believe that the investigation or any issues arising therefrom will have a material adverse effect on our condensed consolidated results of operations, financial ~~information as~~position or cash flows.

Table of ~~September 30, 2017 should be read~~Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

Other Matters

China Indemnification Claims

Subsequent to completing the exchange of our project ownership interests in ~~conjunction~~China for a 15% ownership interest in Sanfeng Environment, Sanfeng Environment made certain claims for indemnification under the agreement related to the condition of the facility in Taixing. In February 2018 we made a settlement payment of $7 million related to this claim.

Durham-York Contractor Arbitration

We are seeking to resolve outstanding disputes with ~~the financial statements~~our primary contractor for the ~~year ended December 31, 2016 contained in our 2016 Annual Report on Form 10-K.~~

~~Factors Affecting Business Conditions and Financial Results~~

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, 2017 September 30, 2016
Consumer Price Index ⁽¹⁾
2.2 % 1.5 %
PJM Pricing (Electricity) ⁽²⁾
$ 26.13
$ 27.90
NE ISO Pricing (Electricity)⁽³⁾
$ 25.36
$ 31.76
Henry Hub Pricing (Natural Gas) ⁽⁴⁾
$ 2.95
$ 2.88
#1 HMS Pricing (Ferrous Metals) ⁽⁵⁾
$ 275
$ 212
Scrap Metals - Old Sheet & Old Cast ⁽⁶⁾
$ 0.60
$ 0.58


~~(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 for Q3 2017 and Q3 2016. Pricing for the PJM PSEG Zone is provided by the PJM ISO.~~


~~(3)~~	~~Average price per MWh for Q3 2017 and Q3 2016. Pricing for the Mass Hub Zone is provided by the NE ISO.~~


~~(4)~~	~~Average price per MMBtu for Q3 2017 and Q3 2016. The Henry Hub Pricing data is provided by the Natural Gas Weekly Update, U.S. Energy Information Administration.~~


~~(5)~~	~~Average price per gross ton for Q3 2017 and Q3 2016. The #1 Heavy Melt Steel ("HMS") composite index ($/gross ton) price as published by American Metal Market.~~


~~(6)~~	~~Average price per pound for Q3 2017 and Q3 2016. Calculated using the high price of Old Cast Aluminum Scrap ($/lb) as published by American Metal Market.~~

~~Seasonal -~~ Our quarterly operating income (loss) within the same fiscal year typically differs 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.

Our operating income (loss) 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.

~~Quarter Updates~~

~~Capital Allocation~~

~~Our key capital allocation activities through the nine months ended September 30, 2017, included the following:~~

~~$99 million declared in dividends to stockholders; and~~

~~$138 million for growth investments, including $91 million towards~~Durham-York construction of the Dublin EfW facility, $17 million to acquire three environmental services businesses, and $27 million for various organic growth investments, which include metals recovery projects, investments related to our profiled waste and environmental services businesses, and continuous improvement projects at our EfW facilities.

~~New Business Development~~

During the nine months ended September 30, 2017, we acquired three environmental solutions businesses, in separate transactions, for a total of $17 million. These acquisitions further expand our Covanta Environmental Solutions capabilities, including client service offerings and geographic reach.

We began commercial operation of our Dublin EfW facility, a 600,000 metric ton-per-year, 58 megawatt facility in Dublin, Ireland, in October 2017. Prior to operations, we secured 90% of the facility’s waste processing capacity under long-term contracts with leading waste and recycling collection companies in Ireland.

In April 2017, we began utilizing our regional metals processing facility, located in Fairless Hills, Pennsylvania, to process non-ferrous metal recovered at our EfW facilities. The non-ferrous metals are cleaned and separated by size and type for purposes of improving product quality to create a higher-valued recycled metal product and expanding our potential end markets.

~~Contract Extensions~~

In June 2017, we extended our agreement with the Delaware County Solid Waste Authority to process waste at our Delaware Valley EfW facility for an additional five years under terms similar to our existing contract.

In February 2017, we extended our agreement with the Southeastern Connecticut Regional Resource Recovery Authority for waste disposal at our Southeast Connecticut EfW facility for an additional four years, restructuring the new contract as a tip fee arrangement.

~~Other Significant Events~~

~~On September 25, 2017, we settled a dispute with Hennepin County, Minnesota~~project regarding extension provisions in our service contract to operate the Hennepin Energy Recovery Center. We received $8 million in connection with the settlement and will continue to operate the facility through March 2018. During the three months ended September 30, 2017, we recorded a gain on settlement of $8 million as a reduction of "Other operating expense, net" in our consolidated statement of operations.

In February 2017, our Fairfax County energy-from-waste facility located in Lorton, Virginia experienced a fire in the front-end receiving portion of the facility. We expect the facility to resume operations in December 2017. The cost of repair or replacement and business interruption losses are insured under the terms of applicable insurance policies, subject to deductibles. We expect receipt of insurance recoveries for both property loss and business interruption to continue through the first half of 2018. The overall impact of the fire, net of insurance, on financial results in 2017 will be impacted(i) claims by the ~~timing~~contractor for change orders and other expense reimbursement and (ii) claims by us for charges and liquidated damages for project completion delays. Our contract with this contractor contemplates binding arbitration to resolve these disputes, which we expect to conclude in 2018. While we do not expect resolution of ~~receipt of insurance recoveries. For additional information, see~~ ~~Item 1. Financial Statements - Note 8. Supplemental Information - Insurance Recoveries.~~

Wethese disputes to have ~~completed the assessment of damage from Hurricane Irma to~~a material adverse impact on our ~~six facilities located in Florida. We have determined that damage sustained is not~~financial position, it could be material to our results of operations ~~but is covered by applicable insurance policies, subject to policy terms and conditions.~~and/or cash flows in any given accounting period.

~~CONSOLIDATED RESULTS OF OPERATIONS~~Other Commitments

Other commitments as of June 30, 2018 were as follows (in millions):



Letters of credit issued under the Revolving Credit Facility	$	183
Letters of credit - other	68
Surety bonds	198
Total other commitments — net	$	449

The ~~following general discussions should~~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 ~~read~~maintained in ~~conjunction with~~effect for the ~~condensed consolidated financial statements,~~period specified in related project contracts, and generally may be drawn if it is not renewed prior to expiration of that period.

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 ~~notes~~beneficiary, the amount drawn would be immediately repayable by us to the condensed consolidated financial statements and other financial information appearing and referred to elsewhere in this report. Additional detail relating to changes in operating revenue and operating expense andissuing bank. If we do not immediately repay such amounts drawn under letters of credit issued under the ~~quantification of specific factors affecting~~Revolving Credit Facility, unreimbursed amounts would be treated under the Credit Facilities as either additional term loans or ~~causing such changes is provided~~as revolving loans.

The surety bonds listed in the ~~segment discussion below.~~ 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.

We have ~~one reportable segment, North America, which is comprised of waste~~certain contingent obligations related to our Senior Notes and ~~energy services operations located primarily in~~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 ~~United States and Canada.~~

~~The comparability~~redemption features of the ~~information provided below with respect to our revenue, expense~~Senior Notes and ~~certain other items for the periods presented was affected by several factors. As outlined in~~ Tax-Exempt Bonds, see Item 8. Financial Statements And Supplementary Data — Note ~~1. Organization and Summary of Significant Accounting Polices~~ ~~and~~ ~~Note 3. New Business and Asset Management~~ 10. Consolidated Debt of our Annual Report on Form ~~10-K~~, ~~our business development initiatives, contract transitions,~~10-K.

We have issued or are party to guarantees and ~~acquisitions resulted in various transactions that are reflected in comparative revenue~~related contractual support obligations undertaken pursuant to agreements to construct and ~~expense. 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~~operate waste and ~~service contracts, most typically representing~~energy facilities. For some projects, such performance guarantees include obligations to repay certain financial obligations if the ~~transition~~project revenue is insufficient to do so, or to obtain or guarantee financing for a ~~new contract structure, and (b) long-term energy contracts.~~

~~Certain amounts in~~project. With respect to our ~~Consolidated Results of Operations may not total due~~businesses, we have issued guarantees to ~~rounding.~~

~~CONSOLIDATED RESULTS OF OPERATIONS — OPERATING INCOME~~

~~Three Months EndedSeptember 30, 2017 and 2016~~

Consolidated: Three Months Ended September 30, Variance
Increase (Decrease)
2017 2016 2017 vs 2016
(In millions)
OPERATING REVENUE:
Waste and service revenue $ 306
$ 299
$ 8
Energy revenue 80
92
(12 )
Recycled metals revenue 23
14
9
Other operating revenue 20
16
4
Total operating revenue 429
421
9
OPERATING EXPENSE:
Plant operating expense 301
272
29
Other operating expense, net 7
14
(8 )
General and administrative expense 24
23
1
Depreciation and amortization expense 51
52
(1 )
Total operating expense 383
361
21
Operating income $ 46
$ 60
$ (14 )

~~Nine Months Ended September 30, 2017 and 2016~~

Consolidated: Nine Months Ended September 30, Variance
Increase (Decrease)
2017 2016 2017 vs 2016
(In millions)
OPERATING REVENUE:
Waste and service revenue $ 902
$ 875
$ 27
Energy revenue 241
279
(38 )
Recycled metals revenue 54
44
10
Other operating revenue 60
44
16
Total operating revenue 1,257
1,242
15
OPERATING EXPENSE:
Plant operating expense 952
901
51
Other operating expense, net 24
45
(21 )
General and administrative expense 82
71
11
Depreciation and amortization expense 155
155
—
Impairment charges 1
19
(18 )
Total operating expense 1,214
1,191
23
Operating income $ 43
$ 51
$ (8 )

~~Operating Revenue~~

~~Waste and Service Revenue~~

Consolidated (in millions): Three Months Ended September 30,
Nine Months Ended September 30,
Variance
Increase (Decrease)
2017 2016
2017 2016
Three Months
Nine Months
EfW waste processing $ 238
$ 241
$ 711
$ 706

$ (3 )
$ 5
Environmental services 32
26
90
72
$ 6

18
Municipal services 50
48
146
140
$ 2

6
Other revenue 12
10
30
28

$ 2

2
Intercompany (26 ) (26 ) (75 ) (71 )
$ —

(4 )
Total waste and service revenue $ 306

$ 299

$ 902

$ 875

$ 8

27

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

North America segment - EfW facilities - Tons ⁽¹⁾
(in millions):
Three Months Ended September 30, Nine Months Ended September 30, Variance
Increase (Decrease)
2017 2016 2017 2016 Three Months Nine Months
Contracted 4.2
4.6
12.5
13.0
(0.4 ) (0.5 )
Uncontracted 0.5
0.5
1.5
1.6
—
(0.1 )
Total tons 4.7
5.1
14.0
14.6
(0.4 ) (0.6 )

~~(1) Includes solid tons only. Does not include contribution from China investments.~~

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

For the three month comparative period, waste and service revenue increased by $8 million year-over-year, driven by $3 million of organic growth, $3 million due to transactions and $2 million due to service contract transitions. Within organic growth, $8 million in improved EfW price and $6 million in higher environmental services revenue were partially offset by lower volume due to downtime at the Fairfax facility.

For the nine month comparative period, waste and service revenue increased by $27 million year-over-year, driven by $18 million of organic growth, $6 million due to transactions and $4 million due to service contract transitions. Within organic growth, $22 million in improved price, driven in part by higher mix of profiled waste, and $18 million in higher environmental services revenue were partially offset by lower volume due to downtime at the Fairfax facility.

~~Energy Revenue~~

Consolidated ⁽¹⁾ (in millions):
Three Months Ended September 30, Nine Months Ended September 30, Variance
Increase (Decrease)
2017 2016 2017 2016 Three Months Nine Months
Energy Sales $ 68
$ 81
$ 209
$ 240
$ (13 )
$ (31 )
Capacity 12
11
32
30
1

2
Other revenue —
—
—
9
—

(9 )
Total energy revenue $ 80
$ 92
$ 241
$ 279
$ (12 )
$ (38 )

~~(1) Covanta share only. Represents the sale of electricity and steam based upon output delivered and capacity provided.~~

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

Total EfW (in millions): Three Months Ended September 30, Variance
Increase (Decrease)
2017 2016 2017 vs 2016

Revenue ⁽¹⁾

Volume ^{(1) (2)}
% of Total Volume
Revenue ⁽¹⁾

Volume ^{(1) (2)}
% of Total Volume Revenue Volume
At Market $ 5
0.2
14 % $ 9
0.2
16 %
Contracted 54
0.6
42 % 65
0.8
53 %
Hedged 21
0.7
44 % 18
0.5
31 %
Total EfW $ 80
1.5
100 % $ 92
1.5
100 % $ (12 ) — %

~~(1) Covanta share only. Represents the sale of electricity and steam based upon output delivered and capacity provided.~~

~~(2) 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, energy revenue decreased by $12 million year-over-year driven by a $9 million decline related to the expiration of certain long-term energy contracts and a $4 million decline from lower production at EfW facilities (with a $7 million decline related to downtime at the Fairfax facility partially offset by higher production at other EfW facilities).

For the nine month comparative period, energy revenue decreased by $38 million year-over-year, primarily due to a $21 million impact from the expiration of certain long-term energy contracts, $15 million from lower production at EfW facilities, driven by downtime at the Fairfax facility, and a $9 million impact from the sale of our facility in Taixing, China, partially offset by a $4 million favorable impact from higher revenue share due to waste and service contract transitions.

~~Recycled Metals Revenue~~

Three Months Ended September 30,

Metal Revenue
(in millions)
Tons Recovered
(in thousands)
Tons Sold
(in thousands) ⁽¹⁾
2017 2016 2017 2016 2017 2016
Ferrous Metal $ 13
$ 8
98
101
81
72
Non-Ferrous Metal 10
6
10
9
8
10
Total $ 23
$ 14

Nine Months Ended September 30,

Metal Revenue
(in millions)
Tons Recovered
(in thousands)
Tons Sold
(in thousands) ⁽¹⁾
2017 2016 2017 2016 2017 2016
Ferrous Metal $ 34
$ 27
291
298
209
235
Non-Ferrous Metal 20
17
29
26
22
27
Total $ 54
$ 44

~~(1) Represents the portion of total volume that is equivalent to Covanta's share of revenue under applicable client revenue sharing arrangements.~~

~~For the three month comparative period, recycled metals revenue increased $9 million primarily due to higher pricing for both ferrous and non-ferrous of $3 million and $6 million, respectively.~~

For the nine month comparative period, recycled metals revenue increased $10 million primarily due to higher pricing for both ferrous and non-ferrous of $12 million and $8 million, respectively, partially offset by lower volume of ferrous and non-ferrous sales of $5 million each due to timing and the impact of metals processing on volume sold.

~~Other Operating Revenue~~

~~Other operating revenue increased by $4 million and $16 million for the three and nine month comparative period, respectively, primarily due to higher construction revenue.~~

~~Operating Expense~~

~~Plant Operating Expense~~

Consolidated (in millions): Three Months Ended September 30,
Nine Months Ended September 30,
Variance
Increase (Decrease)
2017
2016
2017
2016 Three Months Nine Months
Plant maintenance ⁽¹⁾
$ 57
$ 48
$ 234
$ 220
$ 9
$ 14
All other 243
224
718
681
19
37
Plant operating expense $ 301
$ 272
$ 952
$ 901
$ 29
$ 51


~~(1)~~	~~Plant maintenance costs include our internal maintenance team and non-facility employee costs for facility scheduled and unscheduled maintenance and repair expense.~~

Plant operating expenses increased by $29 million from the three month comparable period, primarily driven by higher plant maintenance of $9 million, higher wage and benefit expenses of $8 million and new costs related to growth in our Covanta Environmental Solutions business and new metals processing operations of $7 million.

Plant operating expenses increased by $51 million from the nine month comparable period, driven by higher plant maintenance of $14 million, higher wage and benefit expenses of $14 million, new costs related to growth in our Covanta Environmental Solutions business and new metals processing operations of $8 millionmunicipal clients and other ~~organic cost increases of $11 million, partially offset by transactions which reduced plant operating expenses by $5 million, on a net basis.~~

~~Other Operating Expense~~

~~Other operating expenses decreased by $8 million for the three month comparative period primarily due to a gain from the settlement of~~parties that our ~~contract dispute with Hennepin County.~~

~~Other operating expenses decreased by $21 million for the nine month comparable period, primarily due to insurance recoveries, which are recorded as a contra expense,and the aforementioned contract settlement gain, partially offset by higher construction expenses.~~

~~General and Administrative Expense~~

~~Consolidated general and administrative expenses increased for the three month comparative period by $1 million.~~

Consolidated general and administrative expenses increased for the nine month comparative period by $11 million primarily due to higher year-over-year compensation expense of $5 million and increased costs for outside consulting and accounting services.

~~Impairment Charges~~

During the nine months ended September 30, 2016, due to operational difficulties and the decline in the scrap metals market, we recorded an impairment to our investment in the Tartech joint venture of $3 million, pre-tax, which represented our portion of the carrying value in excess of the fair value of the entity.

During the nine months ended September 30, 2016, we recorded an impairment charge related to the previously planned closure of our Pittsfield EfW facility. In March 2016, we exercised an early termination option available under the steam sale agreement at this facility that would have been effective on or about March 2017. Upon termination of the steam agreement, we intended to cease operations at this facility. As a result, we recorded a non-cash impairment charge of $13 million, pre-tax, which was calculated based on the estimated cash flows for this facility during its remaining operations. In October 2016, we withdrew our termination notice. The City of Pittsfield has agreed to fund upgrades to the facility and the State of Massachusettssubsidiaries will ~~provide energy tax credits, both of which will serve to improve the economics of the facility. In addition, we will continue to sell steam generated by the facility under an amended agreement.~~

~~CONSOLIDATED RESULTS OF OPERATIONS — NON-OPERATING INCOME ITEMS~~

~~Three and Nine Months Ended September 30, 2017 and 2016~~

~~Other Expense:~~

Three Months Ended September 30, Nine Months Ended September 30,
Variance
(Increase) Decrease
2017 2016 2017 2016 Three Months Nine Months
(In millions)
Interest expense, net $ (35 ) $ (35 ) $ (106 ) $ (103 ) $ —

$ (3 )
Gain (loss) on asset sales —
43
(6 ) 43
(43 )
(49 )
Loss on extinguishment of debt —
—
(13 ) —
—

(13 )
Other income (expense), net 2
(1 ) 2
(1 ) 3

3
Total other (expense) income $ (33 ) $ 7
$ (123 ) $ (61 ) $ (40 )
$ (62 )

~~The loss on asset sales for the nine months ended September 30, 2017 related to charges for indemnification claims related to the sale of our interests in China. For additional information, see~~ ~~Item 1. Financial Statements - Note 3. Acquisitions and Dispositions.~~

~~During the nine months ended September 30, 2016, we recorded a gain of $41 million on the sale of our interests in China and a $2 million gain on the sale of a transfer station.~~

The loss on extinguishment of debt for the nine months ended September 30, 2017 was attributable to the redemption of our 7.25% Senior Notes due 2020 on April 3, 2017. As a result of the redemption, we recorded a prepayment charge of approximately $9 million and a write-off of the remaining deferred financing costs of approximately $4 million. For additional information, see ~~Item 1. Financial Statements - Note 6. Consolidated Debt.~~

~~Income Tax Benefit (Expense):~~

Three Months Ended September 30, Nine Months Ended September 30,
Variance
Increase (Decrease)
2017 2016 2017 2016 Three Months Nine Months
(In millions, except percentages)
Income tax benefit (expense) $ 2
$ (12 ) $ 5
$ (5 ) $ 14
$ 10
Effective income tax rate (11 )% 17 % 6 % (50 )% N/A
N/A

The difference between the effective tax rate for September 30, 2017 and 2016 is primarily attributable to the increase of foreign loss which cannot be benefited, the discrete tax adjustments attributable to non-qualified stock options, which expired in the nine months ended September 30, 2017 and changes in the reserve for uncertain tax positions.

~~Net Income (Loss) and Earnings (Loss) Per Share:~~

Three Months Ended September 30, Nine Months Ended September 30,
Variance
Increase (Decrease)
2017 2016 2017 2016 Three Months Nine Months
(In millions, except per share amounts)
Net Income (Loss) $ 15
$ 54
$ (74 ) $ (12 ) $ (39 ) $ (62 )
Weighted average common shares outstanding:
Basic 130
129
129
129
1
—
Diluted 131
131
129
129
—
—
Earnings (Loss) Per Share
Basic $ 0.11
$ 0.42
$ (0.58 ) $ (0.09 ) $ (0.31 ) $ (0.49 )
Diluted $ 0.11
$ 0.42
$ (0.58 ) $ (0.09 ) $ (0.31 ) $ (0.49 )

Cash dividend declared per share
$ 0.25
$ 0.25
$ 0.75
$ 0.75
$ —
$ —

~~Supplementary Financial Information — Adjusted Earnings Per Share (“Adjusted EPS”) (Non-GAAP Discussion)~~

We use a number of different financial measures, both United States generally accepted accounting principles (“GAAP”) and non-GAAP, in assessing the overall performance of our business. To supplement our results preparedperform in accordance with ~~GAAP, we use~~contractual terms, including, where required, the ~~measure~~payment of ~~Adjusted EPS, which is a non-GAAP financial measure as defined by the Securities and Exchange Commission (“SEC”). The non-GAAP financial measure of Adjusted EPS is not intended as a substitute~~damages or ~~as an alternative to diluted earnings (loss) per share as an indicator of~~other obligations. Additionally, damages payable under such guarantees for our performance or any other measure of performance derived in accordance with GAAP. In addition, our non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We use the non-GAAP financial measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business.

Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of diluted earnings per share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include, impairment charges, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and nine months ended September 30, 2017 and 2016, reconciled for each such period to diluted loss per share, which is believed to be the most directly comparable measure under GAAP (in millions, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Diluted Earnings (Loss) Per Share $ 0.11
$ 0.42
$ (0.58 ) $ (0.09 )
Reconciling items ^(a)
0.01
(0.24 ) 0.11
(0.14 )
Adjusted EPS $ 0.12
$ 0.18
$ (0.47 ) $ (0.23 )

~~(a) Additional information is provided in the Reconciling Items table below.~~

Three Months Ended September 30, Nine Months Ended September 30,
Reconciling Items 2017 2016 2017 2016
Impairment charges ^(a)
$ —
$ —
$ 1
$ 19
Gain (loss) on asset sales ⁽ᵇ⁾ —
(43 ) 6
(43 )
Severance and reorganization costs —
—
1
2
Property insurance recoveries, net ^(c)
1
—
(2 ) —
Loss on extinguishment of debt —
—
13
—
Effect on income of derivative instruments not designated as hedging instruments —
1
—
2
Effect of foreign exchange gain on indebtedness (1 ) —
(2 ) (1 )
Total reconciling items, pre-tax —
(42 ) 17
(21 )
Pro forma income tax impact ^(d)
—
10
(5 ) 2
Grantor trust activity 1
1
2
1
Total reconciling items, net of tax $ 1
$ (31 ) $ 14
$ (18 )
Diluted per share impact $ 0.01
$ (0.24 ) $ 0.11
$ (0.14 )
Weighted average diluted shares outstanding 131
131
129
129

~~(a)~~

During the nine months ended September 30, 2016, we recorded a non-cash impairment totaling $19 million which primarily consisted of $13 million related to the previously planned closure of our Pittsfield EfW facility in March 2017, which we now continue to operate and $3 million related to an investment in a joint venture to recover and recycle metals. See ~~Results of Operations - Impairment charges~~ ~~discussion above.~~


~~(b)~~	During the nine months ended September 30, 2017, we recorded a $6 million charge for indemnification claims related to the sale of our interests in China, which was completed in 2016. During the three months ended September 30, 2016, we recorded a $41 million gain on the sale of our interests in China.


~~(c)~~	~~During the nine months ended September 30, 2017, we recorded a $2 million property insurance gain related to our property insurance recoveries.~~


~~(d)~~	~~We calculate the federal and state tax impact of each item using the statutory federal tax rate and applicable blended state rate.~~

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

To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted EBITDA, which is a non-GAAP financial measure as defined by the SEC. This non-GAAP financial measure is described below, and is not intended as a substitute 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 its business and those of possible acquisition candidates, and highlight trends in the overall business.

~~We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit~~energy-from-waste facilities of our most significant subsidiary, Covanta Energy, 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 core business. 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 measured on a consolidated basis. Under the 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 ~~September 30, 2017. Failure to comply with such financial covenants~~ could ~~result in a default under the Credit Facilities, which default would have a material adverse effect on our financial condition and liquidity.~~

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, 2017~~ and 2016, respectively, reconciled for each such period to net loss 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):

Three Months Ended September 30, Nine Months Ended September 30,
2017
2016 2017
2016
Net Income (Loss) $ 15
$ 54
$ (74 ) $ (12 )
Depreciation and amortization expense 51
52
155
155
Interest expense, net 35
35
106
103
Income tax (benefit) expense (2 ) 12
(5 ) 5
Impairment charges ^(a)
—
—
1
19
Gain (loss) on asset sales ⁽ᵃ⁾ —
(43 ) 6
(43 )
Loss on extinguishment of debt —
—
13
—
Insurance recoveries 1
—
(2 ) —
Adjustments for changes in working capital and other items:
Debt service billing in excess of revenue recognized 2
1
4
3
Severance and reorganization costs —
1
1
3
Stock-based compensation expense 5
4
16
13
Other non-cash items —
—
3
4
Capital type expenditures at service fee operated facilities ^(b)
10
6
36
29
Other ^(c)
—
2
1
3
Total adjustments 102
70
335
294
Adjusted EBITDA $ 117
$ 124
$ 261
$ 282


~~(a)~~	~~See~~ ~~Adjusted EPS~~ ~~discussion above.~~


~~(b)~~	~~Adjustment for impact of adoption of FASB ASC 853 -~~ ~~Service Concession Arrangements.~~ ~~These types of expenditures at our service fee operated facilities were historically capitalized prior to adoption of this accounting standard effective January 1, 2015.~~


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

~~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,
2017 2016 2017 2016
Net cash provided by operating activities $ 88
$ 88
$ 114
$ 150
Capital type expenditures at service fee operated facilities ^(a)
10
6
36
29
Cash paid for interest, net of capitalized interest 33
24
100
91
Cash paid for taxes, net (1 ) 3
—
7
Adjustment for working capital and other (13 ) 3
11
5
Adjusted EBITDA $ 117
$ 124
$ 261
$ 282


~~(a)~~	~~See~~ ~~Adjusted EBITDA - Note (b)~~.

~~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.~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

Our principal sources of liquidity are our cash and cash equivalents, cash flow generated from our ongoing operations, and available capacity under our Revolving Credit Facility, which we believe will allowexpose us to ~~meet~~recourse liability on project debt. If we must perform under one or more of such guarantees, our ~~liquidity needs. For additional information regarding our credit facilities and other debt, see~~ ~~Item 1. Financial Statements - Note 6. Consolidated Debt.~~ ~~We typically receive cash distributions from our North America segment projects on a monthly basis. Our primary future cash requirements will~~liability for damages upon contract termination would 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 for at least the next twelve months.

In March 2017, we sold $400 million aggregate principal amount of 5.875% Senior Notes due July 2025. We utilized the net proceeds of the 5.875% Notes offering together with funds borrowed under our Credit Facilities, to redeem the 7.25% Senior Notes due 2020. For further information, see ~~Item 1. Financial Statements - Note 6. Consolidated Debt.~~

We have substantial indebtedness, including approximately $650 million that will mature through 2020. We generally intend to refinance these 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 are in compliance with all of the covenants under the Credit Facilities as of September 30, 2017. Further, we do not anticipate our existing debt covenants to restrict our ability to undertake additional financing. For additional information regarding the covenants under our Credit Facilities, see ~~Item 8. Financial Statements and Supplementary Data — Note 11. Consolidated Debt~~ ~~of our Annual Report on Form 10-K for the year ended December 31, 2016.~~

In 2017, we expect to generate net cash from operating activities which may not alone meet all of our cash requirements for both capital expenditures to maintain our existing assets and for ongoing dividends to stockholders, in which case we would utilize our Revolving Credit Facility on an interim basis. We commenced operations of our Dublin EfW facility and we expect it to contribute meaningfully to our financial results for the remainder of the year. For a full discussion of the factors impacting our 2017 business outlook, see ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Business Outlook~~ of our Annual Report on Form 10-K for the year ended December 31, 2016. We intend to utilize debt financing as the primary means to fund investments in the growth of our business in 2017. For additional information regarding the financing arrangements referenced above, see ~~Item 8. Financial Statements and Supplementary Data - Note 11. Consolidated Debt~~ ~~of our Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~Beyond 2017, we expect that our financial results will be affected~~reduced by several factors, including: market prices, contract transitions, new contracts, rates of new business growth in our environmental services operations, acquisitions and other growth investments, continuous improvement initiatives, and our ability to manage facility production and operating costs. Under our capital allocation policy, we intend to use any excess cash flow from operations above the amount of ongoing requirements for capital expenditures to maintain our existing assets and for ongoing dividends to stockholders either and to invest in growth opportunities or to repay indebtedness. If and as we identify attractive growth investment opportunities that exceed our expected cash flow from operations, we will continue to consider utilizing debt financing to the extent that it is available in the market on acceptable terms.

~~Other Factors Affecting Liquidity~~

As of September 30, 2017, we held cash balances of $37 million, of which $33 million was held by international subsidiaries and not generally available for near-term liquidity in our domestic operations. In addition, as of September 30, 2017, we had restricted cash of $88 million, of which $16 million was designated for future payment of project debt principal. Restricted funds held in trust ~~are primarily amounts received~~ and ~~held by third-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.~~

~~As of September 30, 2017, we had unused capacity under our Revolving Credit Facility of $336 million and are in compliance with all~~proceeds from sales of the ~~covenants under our Credit Facilities. For additional information regarding~~facilities securing the ~~Credit Facilities, see~~ ~~Item 1. Financial Statements — Note 6. Consolidated Debt.~~

~~During~~project debt and is presently not estimable. Depending upon the ~~three months ended September 30, 2017, dividends declared~~circumstances giving rise to ~~stockholders were $33 million, or $0.25 per share. Such amounts were paid in October 2017. We may repurchase outstanding shares from time to time,~~such damages, the ~~amount and timing~~contractual terms of ~~future repurchases may vary depending on market conditions~~the applicable contracts, and the ~~level~~contract counterparty’s choice of ~~operating, financing~~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.

Table of Contents

COVANTA HOLDING CORPORATION AND SUBSIDIARIES

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

New York City Waste Transport and ~~other investing activities. As of September 30, 2017,~~Disposal Contract

We received the ~~amount remaining under our currently authorized share repurchase program was $66 million.~~

Our projected contractual obligations are consistent with amounts disclosed in our Form 10-K for the year ended December 31, 2016. For additional information regarding the 5.875% Notes due 2025 and the 7.25% Notes due 2020, see ~~Item 1. Financial Statements — Note 6. Consolidated Debt.~~ ~~For additional informationon other commitments, see~~ ~~Item 1. Financial Statements — Note 12. Commitments and Contingencies - Other Matters.~~

~~Sources and Uses of Cash Flow for the Nine Months Ended September 30, 2017 and 2016:~~

~~Net cash provided by operating activities for the nine months ended September 30, 2017 was $114 million, a decrease of $36 million~~notice to proceed from the ~~same prior year period.~~New York City Department of Sanitation ("DSNY") to develop the infrastructure supporting the East 91st Street Marine Transfer Station ("MTS"). We expect to commence operations in March 2019. The ~~decrease was primarily due~~MTS is the second in a pair of marine transfer stations under a 20-year waste transport and disposal agreement between Covanta and DSNY. We expect to ~~the operating performance as discussed in our Managements Discussion and Analysis~~incur approximately $35 million of Financial Condition and Results of Operations. The cash outflow related to working capital was greater as compared to the prior year, primarily due to the payment of bonus compensation in 2017, which was absent in 2016, partially offset by higher collections of accounts receivables in 2017.

Net cash used in investing activities for the nine months ended September 30, 2017 was $235 million, a net increase of $57 million from the prior year period. The net increase in cash used was principally attributable to reduced proceeds from asset sales, as this activity occurred only in 2016, and reduced purchases of property, plant and equipment of $64 million, including a lower rate of spend for construction of the Dublin EfW facility, offset by an increase in acquisition spending of $7 million.

Net cash provided by financing activities for the nine months ended September 30, 2017 was $70 million, a net increase of $26 million from the prior period. The increase was primarily attributable to higher net borrowings under the revolving credit facility of $95 million, offset by lower proceeds from our Dublin financing arrangement of $71 million as compared to the prior year period.

~~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 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 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 a criterion of liquidity and performance-based components of employee compensation. Free Cash Flow is defined as cash flow provided by operating activities, less maintenance capital expenditures, which areadditional 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 to make 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 measures, see ~~Consolidated Results of Operations — Supplementary Financial Information — Adjusted EBITDA and Adjusted EPS (Non-GAAP Discussion)~~ ~~above.~~for transportation equipment.

~~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, 2017~~ ~~and 2016, reconciled for each such period to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP.~~

~~The following is a reconciliation of Free Cash Flow and its primary uses (in millions):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017
2016 2017
2016
Net cash provided by operating activities $ 88
$ 88
$ 114
$ 150
Less: Maintenance capital expenditures ^(a)
(20 ) (14 ) (84 ) (82 )
Free Cash Flow $ 68
$ 74
$ 30
$ 68
Uses of Free Cash Flow
Investments:
Growth investments ^(b)
$ (43 ) $ (84 ) $ (138 ) $ (209 )
Property insurance proceeds —
2
5
2
Capital expenditures associated with property insurance events (4 ) —
(13 ) —
Other investing activities, net (2 ) 4
(5 ) 6
Total investments $ (49 ) $ (78 ) $ (151 ) $ (201 )
Return of capital to stockholders:
Cash dividends paid to stockholders $ (33 ) $ (33 ) $ (98 ) $ (98 )
Common stock repurchased —
—
—
(20 )
Total return of capital to stockholders $ (33 ) $ (33 ) $ (98 ) $ (118 )
Capital raising activities:
Net proceeds from issuance of corporate debt ^(c)
$ —
$ —
$ 393
$ —
Net proceeds from Dublin financing 11
60
69
134
Change in restricted funds held in trust 2
4
2
17
Proceeds from sale of China assets —
105
—
105
Net proceeds from capital raising activities $ 13
$ 169
$ 464
$ 256
Debt repayments:
Net cash used for scheduled principal payments on corporate debt $ (1 ) $ (1 ) $ (3 ) $ (2 )
Net cash used for scheduled principal payments on project debt ^(d)
(11 ) (11 ) (18 ) (15 )
Voluntary prepayment of corporate debt —
—
(410 ) —
Payments on equipment financing leases (2 ) (1 ) (4 ) (3 )
Total debt repayments $ (14 ) $ (13 ) $ (435 ) $ (20 )

Borrowing activities - Revolving credit facility, net $ (2 ) $ (110 ) $ 130
$ 35

Other financing activities, net 5
(3 ) 9
(4 )
Effect of exchange rate changes on cash and cash equivalents 1
(1 ) 4
1
Net change in cash and cash equivalents $ (11 ) $ 5
$ (47 ) $ 17


~~(a)~~	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,
2017 2016 2017 2016
Maintenance capital expenditures $ (20 ) $ (14 ) $ (84 ) $ (82 )
Capital expenditures associated with construction of the Dublin EfW facility (35 ) (59 ) (91 ) (132 )
Capital expenditures associated with organic growth initiatives (7 ) (16 ) (27 ) (38 )
Capital expenditures associated with the New York City contract —
—
—
(3 )
Capital expenditures associated with the Essex County EfW emissions control system —
(9 ) (3 ) (27 )
Total capital expenditures associated with growth investments (42 ) (84 ) (121 ) (200 )
Capital expenditures associated with property insurance events (4 ) —
(13 ) —
Total purchases of property, plant and equipment $ (66 ) $ (98 ) $ (218 ) $ (282 )

~~(b) Growth investments include investments in growth opportunities, including organic growth initiatives, technology, business development and other similar expenditures.~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Capital expenditures associated with growth investments $ (42 ) $ (84 ) $ (121 ) $ (200 )
Asset and business acquisitions (1 ) —
(17 ) (9 )
Total growth investments $ (43 ) $ (84 ) $ (138 ) $ (209 )


~~(c)~~	~~Excludes borrowings under Revolving Credit Facility. Calculated as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Proceeds from borrowings on long-term debt $ —
$ —
$ 400
$ —
Less: Financing costs related to issuance of long-term debt —
—
(7 ) —
Net proceeds from issuance of corporate debt $ —
$ —
$ 393
$ —


~~(d)~~	~~Calculated as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Total scheduled principal payments on project debt $ (8 ) $ (8 ) $ (20 ) $ (17 )
Decrease in related restricted funds held in trust (3 ) (3 ) 2
2
Net cash used for scheduled principal payments on project debt $ (11 ) $ (11 ) $ (18 ) $ (15 )

~~Recent Accounting Pronouncements~~

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

~~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~~ ~~months ended September 30, 2017 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~~ ~~of our Annual Report on Form 10-K for the year ended December 31, 2016.~~

NOTE 15. SUBSEQUENT EVENT

Sale of Hydro Facility Investment

In July 2018, we sold our equity interests in a hydroelectric facility located in the state of Washington for proceeds of approximately $12 million. We expect to record a gain on this transaction in the third quarter of 2018. As of June 30, 2018, our equity interest in this facility was classified within "Prepaid expenses and other current assets" on our condensed consolidated balance sheet.

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 Holding Corporation and its subsidiaries; ("Covanta" or the "Company") for the three and six months ended June 30, 2018. The term "Covanta Energy" refers to our subsidiary Covanta Energy, LLC and its subsidiaries. The financial information as of June 30, 2018 should be read in conjunction with the financial statements for the year ended December 31, 2017 contained in our 2017 Annual Report on Form 10-K.

Factors Affecting Business Conditions and Financial Results



	June 30, 2018			June 30, 2017
Consumer Price Index ⁽¹⁾	2.9		%	1.6		%
PJM Pricing (Electricity) ⁽²⁾	$	28.34		$	27.73
NE ISO Pricing (Electricity)⁽³⁾	$	31.95		$	27.34
Henry Hub Pricing (Natural Gas) ⁽⁴⁾	$	2.86		$	3.08
#1 HMS Pricing (Ferrous Metals) ⁽⁵⁾	$	345		$	263
Scrap Metals - Old Sheet & Old Cast ⁽⁶⁾	$	0.64		$	0.63


(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 for Q2 2018 and Q2 2017. Pricing for the PJM PSEG Zone is provided by the PJM ISO.


(3)	Average price per MWh for Q2 2018 and Q2 2017. Pricing for the Mass Hub Zone is provided by the NE ISO.


(4)	Average price per MMBtu for Q2 2018 and Q2 2017. The Henry Hub Pricing data is provided by the Natural Gas Weekly Update, U.S. Energy Information Administration.


(5)	Average price per gross ton for Q2 2018 and Q2 2017. The #1 Heavy Melt Steel ("HMS") composite index ($/gross ton) price as published by American Metal Market.


(6)	Average price per pound for Q2 2018 and Q2 2017. Calculated using the high price of Old Cast Aluminum Scrap ($/lb) as published by American Metal Market.

Seasonal - Our quarterly Operating (loss) income within the same fiscal year typically differs 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.

Our Operating (loss) income 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.

Metals Markets - Recycled metal prices for both ferrous and non-ferrous materials are impacted directly and indirectly by tariff and trade actions both by the US as well as foreign countries. Recent efforts by the US government to place tariffs on imported steel and aluminum have increased domestic demand for our products. The ultimate impact of these tariffs is unclear as retaliation to these tariffs by foreign counties could reduce or eliminate any benefits to us.

Quarter Updates

Capital Allocation

Our key capital allocation activities through the six months ended June 30, 2018, included the following:

$67 million declared in dividends to stockholders; and

$11 million for growth investments, including $4 million to acquire an environmental service business, and $7 million for various organic growth investments, which include metals recovery projects and investments related to our profiled waste and environmental services businesses.

New Business Development and Asset Management

During the six months ended June 30, 2018, we acquired an environmental services business located in Toronto, Canada for approximately $4 million. This acquisition further expands our Covanta Environmental Solutions capabilities, including client service offerings and geographic reach.

In July 2018, we sold our equity interests in a hydroelectric facility located in the state of Washington for proceeds of approximately $12 million.

Contract Extensions

We have extended our power purchase agreements with Marion for an additional 15 years beginning in late 2019 and with Fairfax for an additional year.

Other Significant Events

We received the notice to proceed from the DSNY to develop the infrastructure supporting the East 91st MTS. We expect to commence operations in March 2019. The MTS is the second in a pair of marine transfer stations under a 20-year waste transport and disposal agreement between Covanta and DSNY.

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. Acquisitions and Dispositions in this quarterly report on Form 10-Qand in Item 8. Financial Statements And Supplementary Data — Note 1. Organization and Summary of Significant Accounting Polices and Note 3. New Business and Asset Management of our annual report on Form 10-K, our business development initiatives, contract transitions, and acquisitions resulted in various transactions that are reflected in comparative revenue and expense. 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.

CONSOLIDATED RESULTS OF OPERATIONS — OPERATING INCOME



	Three Months Ended June 30,					Variance Increase (Decrease)
	2018			2017		2018 vs 2017

	(In millions)
OPERATING REVENUE:
Waste and service revenue	$	333		$	310	$	23
Energy revenue	76			75		1
Recycled metals revenue	25			15		10
Other operating revenue	20			24		(4		)
Total operating revenue	454			424		30
OPERATING EXPENSE:
Plant operating expense	334			319		15
Other operating expense, net	19			2		17
General and administrative expense	27			30		(3		)
Depreciation and amortization expense	55			52		3
Impairment charges	37			1		36
Total operating expense	472			404		68
Operating (loss) income	$	(18	)	$	20	$	(38	)



	Six Months Ended June 30,					Variance Increase (Decrease)
	2018		2017			2018 vs 2017

	(In millions)
OPERATING REVENUE:
Waste and service revenue	$	645	$	596		$	49
Energy revenue	176		161			15
Recycled metals revenue	49		31			18
Other operating revenue	42		40			2
Total operating revenue	912		828			84
OPERATING EXPENSE:
Plant operating expense	679		651			28
Other operating expense, net	27		17			10
General and administrative expense	58		58			—
Depreciation and amortization expense	109		104			5
Impairment charges	37		1			36
Total operating expense	910		831			79
Operating income (loss)	$	2	$	(3	)	$	5

Operating Revenue

Waste and Service Revenue



In millions:	Three Months Ended June 30,						Six Months Ended June 30,						Variance Increase (Decrease)
	2018			2017			2018			2017			Three Months			Six Months
EfW tip fees	$	156		$	143		$	310		$	274		$	13		$	36
EfW service fees	100			97			199			195			3			4
Environmental services	37			32			69			61			5			8
Municipal services	54			52			99			96			2			3
Other revenue	12			10			20			18			2			2
Intercompany	(27		)	(25		)	(53		)	(48		)	(2		)	(5		)
Total waste and service revenue	$	333		$	310		$	645		$	596		$	23		$	49

Certain amounts may not total due to rounding.



EfW facilities - Tons ⁽¹⁾(in millions):	Three Months Ended June 30,		Six Months Ended June 30,		Variance Increase (Decrease)
	2018	2017	2018	2017	Three Months		Six Months
Tip fee - contracted	2.3	2.0	4.4	3.9	0.3		0.5
Tip fee - uncontracted	0.4	0.5	1.1	1.1	(0.1	)	—
Service fee	2.3	2.3	4.4	4.4	—		—
Total tons	5.1	4.8	9.9	9.4	0.3		0.5

(1) Includes solid tons only.

Certain amounts may not total due to rounding.

For the three month comparative period, waste and service revenue increased by $23 million, primarily driven by $17 million of organic growth and the start-up of the Dublin EfW facility in the fourth quarter of 2017, partially offset by service contract transitions. Within organic growth, EfW tip fee revenue increased by $8 million due to increased volume processed, primarily from a full quarter of operations at the Fairfax County EfW facility, which was down during the comparative period in 2017, higher average revenue per ton, and growth in environmental services revenue.

For the six month comparative period, waste and service revenue increased by $49 million, primarily driven by $28 million of organic growth and the start-up of the Dublin EfW facility in the fourth quarter of 2017, partially offset by service contract transitions. Within organic growth, EfW tip fee revenue increased by $15 million due to increased volume processed, primarily from a full period of operations at the Fairfax County EfW facility, which was down for a majority of the comparative period in 2017, higher average revenue per ton, and growth in environmental services revenue.

Energy Revenue



In millions:⁽¹⁾	Three Months Ended June 30,				Six Months Ended June 30,				Variance Increase (Decrease)
	2018		2017		2018		2017		Three Months		Six Months
Energy Sales	$	64	$	64	$	151	$	141	$	—	$	10
Capacity	13		11		25		20		2		5
Total energy revenue	$	76	$	75	$	176	$	161	$	1	$	15

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

Certain amounts may not total due to rounding.



Total EfW (in millions):	Three Months Ended June 30,										Variance Increase (Decrease)
	2018					2017					2018 vs 2017
	Revenue ⁽¹⁾		Volume ^{(1) (2)}	% of Total Volume		Revenue ⁽¹⁾		Volume ^{(1) (2)}	% of Total Volume		Revenue			Volume
At Market	$	9	0.3	18	%	$	5	0.2	12	%	$	4		0.1
Contracted	46		0.5	32	%	51		0.6	41	%	(5		)	(0.1	)
Hedged	21		0.8	50	%	19		0.7	47	%	2			0.1
Total EfW	$	76	1.6	100	%	$	75	1.4	100	%	$	1		0.2



Total EfW (in millions):	Six Months Ended June 30,										Variance Increase (Decrease)
	2018					2017					2018 vs 2017
	Revenue ⁽¹⁾		Volume ^{(1) (2)}	% of Total Volume		Revenue ⁽¹⁾		Volume ^{(1) (2)}	% of Total Volume		Revenue			Volume
At Market	$	24	0.6	20	%	$	10	0.4	14	%	$	14		0.2
Contracted	94		1.0	32	%	102		1.2	41	%	(8		)	(0.2	)
Hedged	58		1.6	48	%	49		1.3	45	%	9			0.3
Total EfW	$	176	3.2	100	%	$	161	2.9	100	%	$	15		0.3

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

(2) 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, energy revenue increased by $1 million, with a $9 million increase from higher production at EfW facilities largely offset by lower market prices and the expiration of a long-term energy contract.

For the six month comparative period, energy revenue increased by $15 million, driven by a $14 million increase from higher production at EfW facilities and a $5 million increase from the start-up of the Dublin facility in the fourth quarter of 2017, offset by lower market prices and the expiration of long-term energy contracts.

Recycled Metals Revenue



	Three Months Ended June 30,
	Metal Revenue (in millions)				Tons Recovered (in thousands)		Tons Sold (in thousands) ⁽¹⁾
	2018		2017		2018	2017	2018	2017
Ferrous Metal	$	15	$	10	107	98	81	68
Non-Ferrous Metal	10		4		12	9	7	5
Total	$	25	$	15

(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.



	Six Months Ended June 30,
	Metal Revenue (in millions)				Tons Recovered (in thousands)		Tons Sold (in thousands) ⁽¹⁾
	2018		2017		2018	2017	2018	2017
Ferrous Metal	$	30	$	21	208	193	158	128
Non-Ferrous Metal	19		10		23	18	15	14
Total	$	49	$	31

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

For the three month comparative period, recycled metals revenue increased by $10 million, driven by higher volumes of ferrous and non-ferrous metals recovered and higher prices for the material.

For the six month comparative period, recycled metals revenue increased by $18 million, driven by higher volumes of ferrous and non-ferrous metals recovered and higher prices for the material.

Other Operating Revenue

Other operating revenue decreased by $4 million for the three month comparative period, primarily due to contractual energy sales in 2017 at facilities that did not produce power in 2018 and lower construction revenue.

Other operating revenue increased by $2 million for the six month comparative period, primarily due to increased construction revenue, partially offset by contractual energy sales in 2017 related to facilities that did not produce power in 2018.

Operating Expense

Plant Operating Expense



In millions:	Three Months Ended June 30,				Six Months Ended June 30,				Variance Increase (Decrease)
	2018		2017		2018		2017		Three Months		Six Months
Plant maintenance ⁽¹⁾	$	79	$	79	$	169	$	177	$	—	$	(8	)
All other	255		240		510		475		15		35
Plant operating expense	$	334	$	319	$	679	$	651	$	15	$	28

(1) Plant maintenance costs include our internal maintenance team and non-facility employee costs for facility scheduled and unscheduled maintenance and repair expense.

Plant operating expenses increased by $15 million for the three month comparable period, primarily due to costs related to growth in our Covanta Environmental Solutions business and our metals processing operations, and the start-up of the Dublin EfW facility in the fourth quarter of 2017.

Plant operating expenses increased by $28 million for the six month comparable period, primarily due to costs related to growth in our Covanta Environmental Solutions business and our metals processing operations, and the start-up of the Dublin EfW facility in the fourth quarter of 2017, partially offset by lower plant maintenance expense year-over-year.

Other Operating Expense

Other operating expenses increased by $17 million for the three month comparable period, primarily due to decreased insurance recoveries, which are recorded as a contra expense.

Other operating expenses increased by $10 million for the six month comparable period, primarily due to decreased insurance recoveries, which are recorded as a contra expense, and increased construction expenses.

General and Administrative Expense

General and administrative expenses decreased for the three month comparative period by $3 million driven by lower outside consulting costs for accounting services.

General and administrative expenses remained flat for the six month comparable period.

Impairment Charges

CONSOLIDATED RESULTS OF OPERATIONS — NON-OPERATING INCOME ITEMS

Three and Six Months Ended June 30, 2018 and 2017

Other Income (Expense):



	Three Months Ended June 30,						Six Months Ended June 30,						Variance (Increase) Decrease
	2018			2017			2018			2017			Three Months			Six Months

	(In millions)
Interest expense	$	(36	)	$	(35	)	$	(74	)	$	(71	)	$	(1	)	$	(3	)
(Loss) gain on sale of assets	—			(2		)	210			(6		)	2			216
Loss on extinguishment of debt	—			(13		)	—			(13		)	13			13
Other (expense) income, net	(1		)	—			(1		)	—			(1		)	(1		)
Total (expense) income	$	(37	)	$	(50	)	$	135		$	(90	)	$	13		$	225

During the six months ended June 30, 2018, we recorded a $204 million gain on the sale of 50% of our Dublin EfW to our joint venture with GIG and $6 million gain on the sale of our remaining interests in China. During the three and six months ended June 30, 2017, we recorded a $2 million and $6 million charge for indemnification claims related to the sale of our interests in China.

The loss on extinguishment of debt is attributable to the redemption of our 7.25% Senior Notes due 2020 on April 3, 2017. As a result of the redemption, during the three months ended June 30, 2017, we recorded a prepayment charge of approximately $9 million and a write-off of the remaining deferred financing costs of approximately $4 million.

Income Tax Benefit:



	Three Months Ended June 30,						Six Months Ended June 30,						Variance Increase (Decrease)
	2018			2017			2018			2017			Three Months		Six Months

	(In millions, except percentages)
Income tax benefit (expense)	$	22		$	(8	)	$	31		$	3		$	30	$	28
Effective income tax rate	41		%	24		%	(23		)%	4		%	N/A		N/A

The difference between the effective tax rate for the six months June 30, 2018 and 2017 is primarily attributable to the combined effects of (i) the federal tax rate reduction as the result of the enactment of the Act; (ii) no income tax associated with the gain on the sale of 50% interest in the joint venture with GIG; (iii) the change in the mix of earnings and (iv) the discrete tax benefit attributable to a state audit settlement. For additional information see Item 1. Financial Statements — Note 9. Income Taxes.

Net (loss) income and (Loss) Earnings Per Share:



	Three Months Ended June 30,						Six Months Ended June 30,					Variance Increase (Decrease)
	2018			2017			2018		2017			Three Months		Six Months

	(In millions, except per share amounts)
Net (loss) income	$	(31	)	$	(37	)	$	170	$	(89	)	$	6	$	259
Weighted average common shares outstanding:
Basic	130			130			130		129			—		1
Diluted	130			130			132		129			—		3
(Loss) Earnings Per Share:
Basic	$	(0.24	)	$	(0.28	)	$	1.31	$	(0.69	)	$	0.04	$	2.00
Diluted	$	(0.24	)	$	(0.28	)	$	1.29	$	(0.69	)	$	0.04	$	1.98

Cash dividend declared per share	$	0.25		$	0.25		$	0.50	$	0.50		$	—	$	—

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

To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted EBITDA, which is a non-GAAP financial measure as defined by the 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. Going forward, as larger parts of our business will be conducted through unconsolidated entities that we do not control, we will begin to adjust for our proportionate share of the entities depreciation and amortization, interest expense and taxes in order to improve comparability to the Adjusted EBITDA of our wholly owned entities.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and six months ended June 30, 2018 and 2017, respectively, reconciled for each such period to net income (loss) 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 (loss) income to Adjusted EBITDA (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017

	(Unaudited)
Net (loss) income	$	(31	)	$	(37	)	$	170		$	(89	)
Depreciation and amortization expense	55			52			109			104
Interest expense	36			35			74			71
Income tax (benefit) expense	(22		)	8			(31		)	(3		)
Impairment charges ^(a)	37			1			37			1
Loss (gain) on sale of assets ^(b)	—			2			(210		)	6
Loss on extinguishment of debt	—			13			—			13
Property insurance recoveries, net	—			(3		)	(7		)	(3		)
Capital type expenditures at client owned facilities^(c)	11			12			23			26
Debt service billings in excess of revenue recognized	—			1			1			2
Business development and transaction costs	1			1			3			1
Severance and reorganization costs	2			1			4			1
Stock-based compensation expense	5			6			14			11
Adjustments to reflect Adjusted EBITDA from unconsolidated investments	7			—			11			—
Other ^(d)	2			1			5			3
Adjusted EBITDA	$	103		$	93		$	203		$	144


(a)	During the six months ended June 30, 2018, we identified an indicator of impairment associated with certain of our EfW facilities and recorded a non-cash impairment charge of $37 million to reduce the carrying value of the facilities to their estimated fair value.


(b)	During the six months ended June 30, 2018, we recorded a $204 million gain on the sale of 50% of our Dublin project to our joint venture with GIG and a $6 million gain on the sale of our remaining interests in China.

During the three and six months ended June 30, 2017, we recorded a $2 million and $6 million charge, respectively, for indemnification

claims related to the sale of our interests in China, which was completed in 2016.


(c)	Adjustment for impact of adoption of FASB ASC 853 - Service Concession Arrangements. These types of capital equipment related expenditures at our service fee operated facilities were historically capitalized prior to adoption of this accounting standard effective January 1, 2015 and our capitalized at facilities that we own.


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

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



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Net cash provided by operating activities	$	60		$	18	$	63		$	27
Capital type expenditures at service fee operated facilities ^(a)	11			12		23			26
Cash paid for interest, net of capitalized interest	40			41		73			67
Cash paid for taxes, net	2			2		2			1
Equity in net income from unconsolidated investments	2			1		2			1
Adjustments to reflect Adjusted EBITDA from unconsolidated investments	7			—		11			—
Dividends from unconsolidated investments	(1		)	—		(1		)	—
Adjustment for working capital and other	(18		)	19		30			22
Adjusted EBITDA	$	103		$	93	$	203		$	144

(a) See Adjusted EBITDA - Note (b).

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.

Supplementary Financial Information — Adjusted Earnings Per Share (“Adjusted EPS”) (Non-GAAP Discussion)

We use a number of different financial measures, both GAAP and non-GAAP, in assessing the overall performance of our business. To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted EPS, which is a non-GAAP financial measure as defined by the Securities and Exchange Commission (“SEC”). The non-GAAP financial measure of Adjusted EPS is not intended as a substitute or as an alternative to diluted earnings (loss) per share as an indicator of our performance or any other measure of performance derived in accordance with GAAP. In addition, our non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We use the non-GAAP financial measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business.

Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of diluted earnings per share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include, impairment charges, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale or sold, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and six months ended June 30, 2018 and 2017, reconciled for each such period to diluted earnings (loss) per share, which is believed to be the most directly comparable measure under GAAP (in millions, except per share amounts):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Diluted (Loss) Earnings Per Share:	$	(0.24	)	$	(0.28	)	$	1.29		$	(0.69	)
Reconciling items ^(a)	0.23			0.06			(1.39		)	0.10
Adjusted EPS	$	(0.01	)	$	(0.22	)	$	(0.10	)	$	(0.59	)

(a) Additional information is provided in the Reconciling Items table below.



	Three Months Ended June 30,						Six Months Ended June 30,
Reconciling Items	2018			2017			2018			2017
Impairment charges ^(a)	$	37		$	1		$	37		$	1
Loss (gain) on sale of assets ⁽ᵃ⁾	—			2			(210		)	6
Property insurance recoveries, net	—			(3		)	(7		)	(3		)
Severance and reorganization costs	2			1			4			1
Loss on extinguishment of debt	—			13			—			13
Effect of foreign exchange gain on indebtedness	—			(1		)	1			(1		)
Other	—			—			(1		)	—
Total reconciling items, pre-tax	39			13			(176		)	17
Pro forma income tax impact ^(b)	(10		)	(5		)	(8		)	(5		)
Grantor trust activity	—			—			—			1
Total reconciling items, net of tax	$	29		$	8		$	(184	)	$	13
Diluted per share impact	$	0.23		$	0.06		$	(1.39	)	$	0.10
Weighted average diluted shares outstanding	130			130			132			129


(a)	For additional information, see Adjusted EBITDA above.


(b)	We calculate the federal and state tax impact of each item using the statutory federal tax rate of 21% for 2018 and 35% for 2017 and applicable state rates.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are our cash and cash equivalents, cash flow generated from our ongoing operations, and unutilized capacity under our Revolving Credit Facility, 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 and other debt, see Item 1. Financial Statements - Note 13. Consolidated Debt.

In 2018, we expect to generate net cash from operating activities which may not alone meet all of our cash requirements for both capital expenditures to maintain our existing assets and ongoing dividends to shareholders, in which case we would utilize our Revolving Credit Facility on an interim basis. For a full discussion of the factors impacting our 2018 business outlook, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Business Outlook of our Annual Report on Form 10-K for the year ended December 31, 2017.

In February 2018, we applied the net proceeds from the sale of 50% of our Dublin EfW facility to repay borrowings under our Revolving Credit Facility. In June 2018, we issued 5.00% tax-exempt corporate bonds totaling $30 million. Proceeds from the offerings will be used to finance certain capital expenditures at our Virginia facilities. For additional information see Item 1. Financial Statements - Note 13. Consolidated Debt - Virginia Tax-Exempt Bonds.

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.

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 10. Consolidated Debt of our Annual Report on Form 10-K for the year ended December 31, 2017.

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 shareholders. We believe that our liquidity position and ongoing cash flow from operations will be sufficient to finance these requirements.

Other Factors Affecting Liquidity

As of June 30, 2018, we held cash balances of $39 million, of which $30 million was held by international subsidiaries and not generally available for near-term liquidity in our domestic operations. In addition, as of June 30, 2018, we had restricted cash of $61 million, of which $13 million was designated for future payment of project debt principal. Restricted funds held in trust are primarily amounts received and held by third-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.

As of June 30, 2018, we had unutilized capacity under our Revolving Credit Facility of $442 million and are 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. Consolidated Debt.

During the three months ended June 30, 2018, dividends declared to stockholders were $33 million or $0.25 per share. Such amounts were paid on July 6, 2018. 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 June 30, 2018, the amount remaining under our currently authorized share repurchase program was $66 million.

Except for the tax-exempt bond issuance discussed in Item 1. Financial Statements — Note 13. Consolidated Debt, our projected contractual obligations are consistent with amounts disclosed in our Form 10-K for the year ended December 31, 2017. For additional informationon other commitments, see Item 1. Financial Statements — Note 14. Commitments and Contingencies - Other Matters.

Sources and Uses of Cash Flow for the Six Months Ended June 30, 2018 and 2017:

Net cash provided by operating activities for the six months ended June 30, 2018 was $63 million, an increase of $36 million from the same prior year period. The increase was primarily attributable to improved operating performance as discussed above in Management's Discussion and Analysis of Financial Condition and Results of Operations.

Net cash used in investing activities for the six months ended June 30, 2018 was $23 million, a net decrease of $143 million of cash used in investing activities from the prior year period. The net decrease in cash used was principally attributable to proceeds received from the sale of 50% of our Dublin EfW facility and the sale of our remaining interest in our China investments and decreased purchases of property plant and equipment. For additional information regarding our dispositions, see Item 1. Financial Statements - Note 3. Acquisitions and Dispositions.

Net cash used in financing activities for the six months ended June 30, 2018 was $136 million, as compared to net cash provided by financing activities of $95 million in the prior period. The increase in cash used was primarily attributable to decreased net borrowings on our credit facility of $202 million and decreased borrowings related to the construction of the Dublin EfW facility of $60 million as compared to the prior year, offset by an increase in net borrowing in long term debt of $39 million, primarily related to the proceeds from the Virginia Tax Exempt Bonds. For additional information regarding our Tax Exempt Bonds, see Item 1. Financial Statements - Note 13. Consolidated Debt.

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

To supplement our results prepared in accordance with GAAP, we use the measures of Free Cash Flow and Free Cash Flow Before Working Capital, which are non-GAAP measures as defined by the SEC. These non-GAAP financial measures are 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 and Free Cash Flow Before Working Capital 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 and Free Cash Flow Before Working Capital is intended to enhance the usefulness of our financial information by providing measures 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 measures of Free Cash Flow and Free Cash Flow Before Working Capital 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 maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. Free Cash Flow Before Working Capital is defined as Free Cash Flow excluding changes in working capital. We use Free Cash Flow and Free Cash Flow Before Working Capital as measures 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 shareholders through dividends and/or stock repurchases.

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

In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow and Free Cash Flow Before Working Capital for the three and six months ended June 30, 2018 and 2017, reconciled for each such period to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP.

The following is a reconciliation of Free Cash Flow (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017

	(Unaudited)
Net cash provided by operating activities	$	60		$	18		$	63		$	27
Add: Changes in restricted funds - operating ^(a)	(1		)	(2		)	(11		)	(1		)
Less: Maintenance capital expenditures^(b)	(33		)	(37		)	(78		)	(64		)
Free Cash Flow	$	26		$	(21	)	$	(26	)	$	(38	)
Less: Changes in working capital	(23		)	25			21			20
Free Cash Flow Before Working Capital	$	3		$	4		$	(5	)	$	(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.


(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:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Maintenance capital expenditures	$	(33	)	$	(37	)	$	(78	)	$	(64	)
Maintenance capital expenditures paid but incurred in prior periods	(5		)	—			(12		)	—
Capital expenditures associated with construction of Dublin EfW facility	(4		)	(36		)	(21		)	(56		)
Capital expenditures associated with organic growth initiatives	(7		)	(9		)	(15		)	(23		)
Total capital expenditures associated with growth investments	(11		)	(45		)	(36		)	(79		)
Capital expenditures associated with property insurance events	—			(8		)	(4		)	(9		)
Total purchases of property, plant and equipment	$	(49	)	$	(90	)	$	(130	)	$	(152	)

Recent Accounting Pronouncements

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

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. Except as discussed in Note 1. Organization and Basis of Accounting - Accounting Pronouncements Recently Adopted, management believes there have been no material changes during the six months ended June 30, 2018 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 of our Annual Report on Form 10-K for the year ended December 31, 2017.

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 ~~have been~~were no material changes during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to the items discussed in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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~~June 30, ~~2017.~~2018. 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, our disclosure controls and procedures ~~were not~~are effective to provide such reasonable assurance, because the previously reported material weakness in the tax area, discussed below, has not yet been remediated. We have advised our audit committee of this deficiency in our internal control over financial reporting, and the fact that this deficiency constitutes a "material weakness."assurance.

A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.

Because such material weakness was determined to exist, we performed additional procedures to ensure our condensed consolidated financial statements included in this quarterly report on Form 10-Q presented fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

~~Income Taxes~~

~~During the quarter ended September 30, 2017,~~Our management, including our Chief Executive Officer and Chief Financial Officer, ~~concluded~~believes that ~~we have~~any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not ~~fully remediated~~absolute, assurance that the previously-reported material weakness related to the precision of the review to ensure the accuracy of certain cumulative deferred tax balances, including the state income tax rate applied to certain cumulative deferred tax balances, and the review of the tax impact of certain business transactions.

~~Since first reporting this material weakness during the quarter ended June 30, 2015, we have continued to observe the operation of each~~objectives of the control ~~changes effected as part of our remediation efforts implemented during 2016 as described in Item 9A. Controls and Procedures in our 2016 Form 10-K, as well as~~system are met. Further, the ~~following changes implemented effective January 1, 2017 which were put in place to enhance the previously described remediation efforts:~~

~~Enhanced analysis of tax-sensitive aspects~~design of a ~~business transaction;~~

~~Formalized documentation~~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 ~~above referenced tax analysis; and~~

~~Enhanced review~~control. While the design of any system of controls is to provide reasonable assurance of the ~~above referenced tax analysis prior to finalizing.~~

As we continue to evaluate and work to improve our internal control over financial reporting, management may determine that it is necessary to take additional measures to address this control deficiency or may determine that it is necessary to modify the remediation plan described above. Management continues to monitor implementation of its remediation plans and timetables and believes the efforts described above will effectively remediate this material weakness.

~~Although the control changes have been implemented, we continue to observe and refine them as appropriate, and we have concluded that the period of time over which the operating~~ effectiveness of ~~newly implemented~~disclosure controls, such design is also based in part upon certain assumptions about the likelihood of future events, and ~~modified controls is~~such assumptions, while reasonable, may not ~~yet sufficient for our Chief Executive Officer~~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 ~~Chief Financial Officer to conclude that this material weakness has been effectively remediated.~~may not be prevented or detected.

Changes in Internal Control over Financial Reporting

~~Except as noted in the preceding paragraphs, there has~~

There have not been any ~~change~~changes in our system of internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see Item 1. Financial Statements — Note ~~12.~~14. Commitments and Contingencies, which information is incorporated herein by reference.

Item 1A. RISK FACTORS

There have been no material changes during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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

None.

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
31.1		Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 by the Chief Executive Officer.
31.2		Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 by the Chief Financial Officer.
32		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:		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:		XBRL Taxonomy Extension Schema
Exhibit 101.CAL:		XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.DEF:		XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.LAB:		XBRL Taxonomy Extension Labels Linkbase
Exhibit 101.PRE:		XBRL Taxonomy Extension Presentation Linkbase

* Management contract or compensatory plan or arrangement.

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/ BRADFORD J. HELGESON
		Bradford J. Helgeson
		Executive Vice President, Chief Financial Officer

	By:	/S/ MANPREET S. GREWAL
		Manpreet S. Grewal
		Vice President and Chief Accounting Officer

Date: ~~October~~July 27, ~~2017~~2018

4140



Amount Reclassified from Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income Component	Nine Months Ended September 30, 2016		Affected Line Item in the Consolidated Statement of Operations

Foreign currency translation	$	5	Gain on asset sales
	5		Total before tax
	—		Tax benefit
Total reclassifications	$	5	Net of tax



	North America		All Other			Total
Three Months Ended September 30, 2017
Operating revenue	$	429	$	—		$	429
Depreciation and amortization expense	51		—			51
Impairment charges	—		—			—
Operating income (loss)	48		(2		)	46

Three Months Ended September 30, 2016
Operating revenue	$	421	$	—		$	421
Depreciation and amortization expense	52		—			52
Impairment charges	—		—			—
Operating income (loss)	62		(2		)	60
	North America		All Other ⁽¹⁾			Total
Nine Months Ended September 30, 2017
Operating revenue	$	1,257	$	—		$	1,257
Depreciation and amortization expense	155		—			155
Impairment charges	1		—			1
Operating income (loss)	49		(6		)	43

Nine Months Ended September 30, 2016
Operating revenue	$	1,235	$	7		$	1,242
Depreciation and amortization expense	155		—			155
Impairment charges	19		—			19
Operating income (loss)	55		(4		)	51



	Total			Direct Borrowings as of		Outstanding Letters of Credit as of		Unused Capacity as of
	Credit Facility		Expiring ⁽¹⁾	September 30, 2017		September 30, 2017		September 30, 2017
Revolving Credit Facility	$	1,000	2020	$	473	$	191	$	336



	As of September 30, 2017
	Unrecognized stock- based compensation	Weighted-average years to be recognized
Restricted stock awards	$ 11	1.5
Restricted stock units	$ 11	1.8



	As of September 30, 2017				As of December 31, 2016
Financial Instruments Recorded at Carrying Amount:	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Accounts receivable ⁽⁶⁾	$	326	$	326	$	333	$	333
Liabilities:
Long-term debt	$	2,375	$	2,383	$	2,252	$	2,237
Project debt	$	476	$	481	$	383	$	387



		Amount of Gain or (Loss) Recognized In Income on Derivatives
Effect on Income of Derivative Instruments Not Designated As Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivatives	Three Months Ended September 30,					Nine Months Ended September 30,
		2017		2016			2017		2016
Foreign currency	Other income (expense), net	$	—	$	(1	)	$	—	$	(2	)
Effect on income of derivative instruments not designated as hedging instruments		$	—	$	(1	)	$	—	$	(2	)



	Commitments Expiring by Period
	Total		Less Than One Year		More Than One Year
Letters of credit issued under the Revolving Credit Facility	$	191	$	11	$	180
Letters of credit - other	69		69		—
Surety bonds	202		—		202
Total other commitments — net	$	462	$	80	$	382



	September 30, 2017			September 30, 2016
Consumer Price Index ⁽¹⁾	2.2		%	1.5		%
PJM Pricing (Electricity) ⁽²⁾	$	26.13		$	27.90
NE ISO Pricing (Electricity)⁽³⁾	$	25.36		$	31.76
Henry Hub Pricing (Natural Gas) ⁽⁴⁾	$	2.95		$	2.88
#1 HMS Pricing (Ferrous Metals) ⁽⁵⁾	$	275		$	212
Scrap Metals - Old Sheet & Old Cast ⁽⁶⁾	$	0.60		$	0.58



Consolidated:	Three Months Ended September 30,				Variance Increase (Decrease)
	2017		2016		2017 vs 2016
	(In millions)
OPERATING REVENUE:
Waste and service revenue	$	306	$	299	$	8
Energy revenue	80		92		(12		)
Recycled metals revenue	23		14		9
Other operating revenue	20		16		4
Total operating revenue	429		421		9
OPERATING EXPENSE:
Plant operating expense	301		272		29
Other operating expense, net	7		14		(8		)
General and administrative expense	24		23		1
Depreciation and amortization expense	51		52		(1		)
Total operating expense	383		361		21
Operating income	$	46	$	60	$	(14	)



Consolidated (in millions):	Three Months Ended September 30,						Nine Months Ended September 30,						Variance Increase (Decrease)
	2017			2016			2017			2016			Three Months			Nine Months
EfW waste processing	$	238		$	241		$	711		$	706		$	(3	)	$	5
Environmental services	32			26			90			72			$	6		18
Municipal services	50			48			146			140			$	2		6
Other revenue	12			10			30			28			$	2		2
Intercompany	(26		)	(26		)	(75		)	(71		)	$	—		(4		)
Total waste and service revenue	$	306		$	299		$	902		$	875		$	8		27



Consolidated ⁽¹⁾ (in millions):	Three Months Ended September 30,				Nine Months Ended September 30,				Variance Increase (Decrease)
	2017		2016		2017		2016		Three Months			Nine Months
Energy Sales	$	68	$	81	$	209	$	240	$	(13	)	$	(31	)
Capacity	12		11		32		30		1			2
Other revenue	—		—		—		9		—			(9		)
Total energy revenue	$	80	$	92	$	241	$	279	$	(12	)	$	(38	)

As of June 30, 2018

Unrecognized stock-
based compensation

Weighted-average years
to be recognized

Restricted stock awards

Restricted stock units