This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future. They are based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance and actual results. Developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near and long-term. These forward-looking statements should be considered in light of the information included in this report and our other filings with the Securities and Exchange Commission, including, without limitation, the Risk Factors, as well as the description of trends and other factors in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in our 20172018 Annual Report on Form 10-K ("10K").

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.

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 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 as well as from the sale of metal recovered during the EfW process. We process approximately 2022 million tons of solid waste annually. We operate and/or have ownership positions in 4241 energy-from-waste facilities, which are primarily located in North 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, we offer a variety of sustainable waste management solutions in response to customer demand, including industrial, consumer products and healthcare waste handling, treatment and assured destruction, industrial wastewater treatment and disposal, product depackaging and recycling, on-site cleaning services, and transportation services. Together with our processing of non-hazardous "profiled waste" for purposes of assured destruction or sustainability goals in our EfW facilities, we offer these services under our Covanta Environmental Solutions brand.

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 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, 2018.2019. The condensed consolidated balance sheet at December 31, 2017,2018, 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, 20172018 (“Form 10-K”).

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 606)842) which supersedes nearly all existing revenue recognition guidance.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. Subsequent to the issuance of Topic 606,842, the FASB clarified the guidance through several ASUs; hereinafter the collection of revenuelease guidance is referred to as Accounting Standards Codification (“ASC") 606.842. The core principle of ASC 606 is that revenue should be recognizedrevised guidance seeks to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

As part of the adoption, we elected the package of practical expedients permitted under the transition guidance within the new standard, must be adopted using a modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. Effective January 1, 2018, we adopted this standard. The adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.which, among other things, allowed us to:

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

The following table summarizes recent ASU's issued by the FASB that could have a material impact on our consolidated financial statements.

In March 2019, we reached financial close on the Rookery South Energy Recovery Facility (“Rookery”), a 1,600 metric ton-per-day, 60 megawatt EfW facility under construction in Bedfordshire, England. Rookery is not material to our condensed consolidated financial statements, therefore, disclosures of pro forma financial information have not been presented. The results ofsecond investment in the UK with our strategic partner, Green Investment Group Limited (“GIG”). Through a 50/50 jointly-owned and governed entity (“Covanta Green”), we and GIG will own an 80% interest in the project. We co-developed the project with Veolia ES (UK) Limited (“Veolia”), who will own the remaining 20%. We will provide technical oversight during construction and will provide operations reflectand maintenance (“O&M”) services for the period of ownershipfacility, and Veolia will be responsible for supplying at least 70% of the acquired business, business development projects and dispositions.waste processing capacity. The facility is expected to commence commercial operations in 2022.

The fair value of our retained equity investment in Covanta Green Investment Group Limited (“GIG”) Joint Venturewas determined by the fair value of the consideration received from GIG for the right to invest 40% in the project.

In December 2017,February 2018, we entered into a strategic partnership with GIG, a subsidiary of Macquarie Group Limited, to develop EfW projects in the U.K. and Ireland. Ourcompleted our first investment with GIG, Covanta Europe Assets Limited, which is structured as a 50/50 joint venture ("JV")jointly-owned and governed entity between Covanta and GIG. As an initial step, we contributed 100% of our Dublin EfW project ("Dublin EfW") intoto the JV,entity, and GIG acquired a 50% ownership in the JV for €136 million ($167 million).entity. We retained a 50% equity interest in the JVentity and retained our role as operations and maintenance ("O&M")&M service provider to Dublin EfW. Duringfor the fourth quarter of 2017, we determined that the assets and liabilities associated with Dublin EfW 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 our condensed consolidated balance sheets as current "Assets held for sale” and current "Liabilities held for sale.”.

On February 9, 2018During the second quarter of 2019, as part of our ongoing asset rationalization and portfolio optimization efforts, we solddivested our cost method investmentPittsfield and Springfield EfW facilities. During the first quarter, we determined that the assets and liabilities associated with these facilities met the criteria for classification as assets held for sale, but did not meet the criteria for classification as discontinued operations as this sale did not represent a strategic shift in Chongqing Sanfeng Covanta Environmental Industrial Group, Co., Ltd ("Sanfeng Environment")our business. During the three and received proceeds of $13 million. For the six months ended June 30, 2018,2019, we recordedrecognized a gain on the saleloss of $6$3 million and $12 million, respectively, which is included in "(Loss)Net (loss) gain on sale of assets" onbusiness and investments in our condensed consolidated statement of operations.

We calculate basic EPSEarnings Per Share ("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):

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

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, 2018.2019. 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:

The following table reflects the balance in our contract assets, which we classify as “Accounts receivable unbilled” and present net in Accounts receivable, and our contract liabilities, which we classify as deferred revenue and present in “Accrued expenses and other current liabilities” in our condensed consolidated balance sheet (in millions):

For the six months ended June 30, 2018,2019, revenue recognized that was included in deferred revenue onin our condensed consolidated balance sheet at the beginning of the period totaled $4$8 million.

During the six months ended June 30, 2018,2019, we awarded certain employees grants of 1,195,4181,085,497 restricted stock units ("RSUs"). The RSUs will be expensed over the requisite service period. The terms of the RSUs include vesting provisions based solely on continued service. If the service criteria are satisfied, the RSUs will generally vest during March of 2019, 2020, 2021, and 2021.2022.

During the six months ended June 30, 2018,2019, we awarded certain employees 385,464395,320 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.peers.

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, 2018,2019, we awarded 15,98181,635 RSUs and 6,236 restricted stock awards ("RSAs") for annual director compensation. In addition, during the six months ended June 30, 2019, we awarded 11,935 RSUs for quarterly director fees forto certain of our directors who elected to receive RSUs in lieu of cash payments. We determined the service vesting condition of these restricted stock awardsRSU's and RSU'sRSA's 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.

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

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

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

Pass through costs were as follows (in millions):

In February 2017, our Fairfax County energy-from-waste facility 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. The facility resumed operations in December 2017. We expect receipt ofto receive the remaining insurance recoveries for both property loss and business interruption in the remainder of 2018.during 2019.

The cost of repair or replacement of assets and business interruption losses isare 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):

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,was, more likely than not, that the assets willwould not be operated through their previously estimated economic useful life.lives. 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.

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.

The Company’s global ETR for the six months ended June 30, 2019 and 2018 was 7% and 2017, respectively.(23)%, respectively, including discrete tax items. The decreaseincrease 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.impact of non-recurring transactions.

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:

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 June 30, 2018.2019. 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 June 30, 20182019 and December 31, 20172018 (in millions):

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.