8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 22, 2010

COVANTA HOLDING CORPORATION

(Exact name of Registrant as Specified in Its Charter)

Delaware	1-06732	95-6021257
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

40 Lane Road Fairfield, New Jersey	07004
(Address of principal executive offices)	(Zip Code)

(973) 882-9000

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12(b))

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

     On February 22, 2010, Covanta Holding Corporation issued a press release reporting the results for the fourth quarter and full year periods ended December 31, 2009, and announcing a conference call and webcast to be held at 8:30 a.m. (Eastern) on Tuesday, February 23, 2010 to discuss these results. A copy of this press release is attached as Exhibit 99.1 hereto and incorporated herein by reference. This information includes certain non-GAAP financial information as identified in Exhibit 99.1.

     The information in this Form 8-K and Exhibit 99.1 is furnished pursuant to Item 2.02 of this Form 8-K and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired — Not Applicable

(b) Pro Forma Financial Information — Not Applicable

(c) Exhibits

Exhibit No.	Exhibit
99.1	Press Release, dated February 22, 2010.

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.

Date: February 22, 2010

COVANTA HOLDING CORPORATION (Registrant)
By:	/s/ Timothy J. Simpson
	Name:	Timothy J. Simpson
	Title:	Executive Vice President, General Counsel and Secretary

COVANTA HOLDING CORPORATION

EXHIBIT INDEX

Exhibit No.	Exhibit
99.1	Press Release, dated February 22, 2010.

EX-99.1

Exhibit 99.1

COVANTA HOLDING CORPORATION REPORTS
2009 FOURTH QUARTER AND FULL-YEAR RESULTS;
ESTABLISHES 2010 GUIDANCE

2009 Operating Cash Flow of $397 Million Exceeds Guidance

FAIRFIELD, NJ, February 22, 2010 – Covanta Holding Corporation (NYSE:CVA) (“Covanta” or the “Company”) reported financial results today for the three and twelve months ended December 31, 2009.

Anthony Orlando, President and CEO of Covanta noted that, “Our base business demonstrated strength and resiliency by generating more free cash flow than our prior best year in spite of lower recycled metal and energy prices. In addition, we made excellent progress on our growth initiatives by acquiring Veolia’s North American Energy-from-Waste business and breaking ground on strategic new Energy-from-Waste capacity on three continents. This performance is a real credit to all of Covanta’s outstanding employees.”

Fourth Quarter Results

For the three months ended December 31, 2009, consolidated operating revenues decreased 2% to $407 million, down from $414 million in the prior year comparative period.

Revenues from the Americas segment increased $16 million, or 5%, to $358 million. New business revenues of $37 million related primarily to the acquisition of Veolia’s North American Energy-from-Waste business (the“Veolia Acquisition”) more than offset the $21 million decline in the existing business revenue.

Operating expenses for the Americas segment increased by $26 million during the quarter. New business operating expenses of $34 million were primarily related to the Veolia Acquisition.

International segment revenue decreased by $24 million in the fourth quarter while plant operating expenses declined by $32 million. The decline in both revenues and operating expenses resulted primarily from lower demand and fuel costs at our Indian facilities.

Adjusted EBITDA was $140 million, compared to $138 million for 2008, an increase of 1%. Fourth quarter 2008 Adjusted EBITDA benefitted from an insurance recovery of $8 million and an $8 million project debt prepayment made by our Stanislaus municipal client. Excluding these benefits in last year’s fourth quarter, Adjusted EBITDA increased by approximately $18

million with a $10 million contribution from the Veolia Acquisition and $10 million from our international operations, offset partially by lower electricity and waste prices.

Cash flow provided by operating activities (“Operating Cash Flow”) was $150 million in the fourth quarter, compared to $132 million in 2008. The fourth quarter 2008 results exclude the $8 million insurance recovery. The approximately $10 million increase in Operating Cash Flow was driven by project dividends and working capital.

Full-Year 2009 Results

For the twelve months ended December 31, 2009, consolidated operating revenues were $1.55 billion down 7% from $1.66 billion in 2008, primarily as a result of lower International segment revenues.

Americas segment revenues declined $25 million or 2% to $1.35 billion. New business revenue was $73 million. Existing business revenues declined by $98 million, largely due to lower pricing on recycled metals, energy and waste.

International segment revenues decreased $95 million during the year while operating expenses declined by $97 million. The decreases in revenues and operating expenses resulted primarily from lower fuel costs at our Indian facilities.

For the year, Operating Cash Flow was $397 million and Free Cash Flow (defined as Operating Cash Flow less maintenance capital expenditures) was $345 million. Operating Cash Flow was nearly flat with the prior year while Free Cash Flow improved slightly.

Adjusted EBITDA was $515 million in 2009 compared to $552 million in the prior year when excluding the benefit of the 2008 insurance recovery and the Stanislaus project debt prepayment. This decline was driven largely by lower recycled metal and energy prices off-set by the Veolia Acquisition.

Net income was $102 million compared to $129 million in 2008. 2009 diluted EPS was $0.66 compared to $0.83 in the prior year.

At year end, the Company’s balance sheet remained strong and had ample liquidity with $434 million of unrestricted cash, $278 million of restricted cash (of which $166 million is designated for future project debt principal repayment), and an undrawn $300 million revolving credit facility.

“We anticipate 2010 Adjusted EBITDA to increase modestly driven by last year’s acquisitions and organic growth, off-set by head winds related to contract transitions and our decision to increase development spending,” stated Anthony Orlando. He continued, “This is an important year for our development activities, particularly in the U.K. where we are vigorously pursuing several large Energy-from-Waste opportunities. I’m confident our investment in long-term growth will bear fruit. In addition, we’re advocating for U.S. Renewable Electricity Standards that would accelerate our growth.”

2

2010 Guidance

The Company is establishing guidance for 2010 for the following key metrics:

— Free Cash Flow in the range of $300 million to $340 million;

— Adjusted EBITDA of $520 million to $560 million; and

— Diluted earnings per share of $0.55 to $0.75.

Please note that we have elected to provide Free Cash Flow guidance rather than guidance relating to Operating Cash Flow for 2010. We are focused on generating cash and believe that Free Cash Flow is a more useful metric for evaluating the liquidity of the business as it represents cash that is available to invest in growth and repay debt.

Conference Call Information

Covanta will host a conference call at 8:30 am (Eastern) on Tuesday, February 23, 2010 to discuss its results for the three and twelve months ended December 31, 2009. Prepared remarks will be followed by a question-and-answer session. To participate, please dial 877-806-3982 approximately 10 minutes prior to the scheduled start of the call and when prompted, enter the passcode 53809407. If you are calling from outside of the United States, please dial 702-928-7062 and use the same passcode. The conference call will also be web cast live on the Investor Relations section of the Covanta website at www.covantaholding.com.

A replay of the conference call will be available from 11:30 am (Eastern) on Tuesday, February 23, 2010 through midnight (Eastern) on Tuesday, March 2, 2010. To access the replay, please dial 800-642-1687 or, from outside of the United States, please dial 706-645-9291 and use the replay passcode: 53809407. The webcast will also be archived on www.covantaholding.com and available for MP3 download.

Additional Information

The Company’s annual report on Form 10-K will be filed with the Securities and Exchange Commission on February 22, 2010. Printed copies of this document are available free of charge. Requests can be submitted at http://investors.covantaholding.com or by calling 1-800-882-4122, Ext. 7001.

About Covanta

Covanta Holding Corporation (NYSE:CVA), is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy. Covanta’s 45 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta’s modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into more than 9 million megawatt hours of clean renewable electricity and create 10 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaholding.com.

3

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta and its subsidiaries, or general industry or broader economic performance in global markets in which Covanta operates or competes, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully close its announced or planned acquisitions or projects in development and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Covanta’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

Contacts

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

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

Attachments

4

Exhibit 1

Covanta Holding Corporation

Consolidated Statements of Income

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
	(Unaudited)						(Audited)
				(In thousands, except per share amounts)
Operating revenues
Waste and service revenues	$	252,306		$	235,911		$	919,604		$	934,527
Electricity and steam sales		140,497			159,898			580,248			660,616
Other operating revenues		14,409			18,011			50,615			69,110
Total operating revenues		407,212			413,820			1,550,467			1,664,253
Operating expenses
Plant operating expenses (A)		242,278			256,089			946,166			999,674
Depreciation and amortization expense		52,155			47,344			202,872			199,488
Net interest expense on project debt		10,880			12,452			48,391			53,734
General and administrative expenses		27,869			26,445			109,235			97,016
Insurance recoveries, net of write-down of assets (A)		—			(8,325	)		—			(8,325	)
Other operating expenses		13,698			19,227			47,968			66,701
Total operating expenses		346,880			353,232			1,354,632			1,408,288
Operating income		60,332			60,588			195,835			255,965
Other income (expense)
Investment income		871			1,505			4,007			5,717
Interest expense		(10,825	)		(10,928	)		(38,116	)		(46,804	)
Non-cash convertible debt related expense		(9,728	)		(4,617	)		(24,290	)		(17,979	)
Total other expenses		(19,682	)		(14,040	)		(58,399	)		(59,066	)
Income before income tax expense and equity in net income from unconsolidated investments		40,650			46,548			137,436			196,899
Income tax expense		(15,847	)		(24,776	)		(50,044	)		(84,561	)
Equity in net income from unconsolidated investments		5,945			5,228			23,036			23,583
Net Income		30,748			27,000			110,428			135,921
Less: Net (income) loss attributable to noncontrolling interests in subsidiaries		(2,471	)		299			(8,783	)		(6,961	)
Net Income Attributable to Covanta Holding Corporation	$	28,277		$	27,299		$	101,645		$	128,960
Earnings Per Share:
Basic	$	0.18		$	0.18		$	0.66		$	0.84
Weighted Average Shares		153,796			153,417			153,694			153,345
Diluted	$	0.18		$	0.18		$	0.66		$	0.83
Weighted Average Shares		155,171			154,673			154,994			154,732

(A) The SEMASS energy-from-waste facility was damaged by a fire on March 31, 2007. The cost of repair or replacement was insured under the terms of the applicable insurance policy, subject to deductibles. During the year ended 2008, Covanta recorded insurance recoveries of $5.2 million related to business interruption losses as a reduction to operating expenses and $8.3 million related to repair and reconstruction costs as a reduction to the loss related to the write-down of assets. Settlement of the property damage insurance claim occurred in December 2008. See Note 15 – Supplementary Financial Information of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009 for a discussion of the insurance recoveries.

Exhibit 2

Covanta Holding Corporation
Reconciliation of Net Income to Adjusted EBITDA

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,						Full Year
	2009			2008			2009			2008			Estimated 2010
				(Unaudited, in thousands)
Net Income Attributable to Covanta Holding Corporation	$	28,277		$	27,299		$	101,645		$	128,960			$85,000 - $117,000
Depreciation and amortization expense		52,155			47,344			202,872			199,488			192,000 - 198,000
Debt service:
Net interest expense on project debt		10,880			12,452			48,391			53,734
Interest expense		10,825			10,928			38,116			46,804
Non-cash convertible debt related expense		9,728			4,617			24,290			17,979
Investment income		(871	)		(1,505	)		(4,007	)		(5,717	)
Subtotal debt service		30,562			26,492			106,790			112,800			127,000 - 121,000
Income tax expense		15,847			24,776			50,044			84,561			61,000 - 71,000
Acquisition-related costs (A)		337			—			6,289			—			—
Other adjustments:
Change in unbilled service receivables		4,964			7,319			18,620			14,020
Non-cash compensation expense		3,496			3,364			14,220			14,750
Other (B)		1,880			1,773			5,835			12,249
Subtotal other adjustments		10,340			12,456			38,675			41,019			49,000 - 43,000
Net income (loss) attributable to noncontrolling interests in subsidiaries		2,471			(299	)		8,783			6,961			6,000 - 10,000
Total adjustments		111,712			110,769			413,453			444,829
Adjusted EBITDA(C)	$	139,989		$	138,068		$	515,098		$	573,789		$	520,000 - $560,000

(A)	This amount relates primarily to acquisition-related costs associated with the Veolia EfW acquisition in 2009. Acquisition-related costs are no longer capitalized as a cost of the business acquired. Instead, these costs are expensed as they are incurred as a result of a recent accounting pronouncement which was effective January 1, 2009.
(B)	These items represent amounts that are non-cash in nature.
(C)	The components of Adjusted EBITDA are as follows:

	Three Months Ended				Twelve Months Ended
	December 31,				December 31,
	2009		2008		2009		2008
			(Unaudited, in thousands)
Impact of SEMASS fire (1)	$	—	$	8,268	$	—	$	13,380
Stanislaus debt service prepayment		—		8,007		—		8,007
All other		139,989		121,793		515,098		552,402
Adjusted EBITDA	$	139,989	$	138,068	$	515,098	$	573,789

(1) This amount primarily includes insurance recoveries received in 2008 for business interruption losses related to the SEMASS energy-from-waste facility fire on March 31, 2007.

Exhibit 3

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

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,				Full Year
	2009			2008			2009		2008		Estimated 2010
				(Unaudited, in thousands)
Cash flow provided by operating activities (A)	$	149,505		$	131,905		$	397,238	$	402,607		$370,000-$420,000
Acquisition-related costs		3,930			—			4,619		—		—
Debt service		30,562			26,492			106,790		112,800		127,000-121,000
Amortization of debt premium and deferred financing costs		474			1,518			3,265		7,023		7,000
Other		(44,482	)		(21,847	)		3,186		51,359		16,000-12,000
Adjusted EBITDA	$	139,989		$	138,068		$	515,098	$	573,789	$	520,000 - $560,000

(A) Cash flow provided by operating activities was negatively affected by payments for acquisition-related costs related to acquisitions made in 2009.

Exhibit 4

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

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,						Full Year
	2009			2008			2009			2008			Estimated 2010
				(Unaudited, in thousands)
Cash flow provided by operating activities (A)	$	149,505		$	131,905		$	397,238		$	402,607		$	370,000-$420,000
Less: Maintenance capital expenditures (B)		(7,792	)		(14,849	)		(51,937	)		(60,639	)		(70,000)-(80,000	)
Free Cash Flow	$	141,713		$	117,056		$	345,301		$	341,968		$	300,000 - $340,000
Selected Uses of Free Cash Flow:
Principal payments on long-term debt	$	(1,582	)	$	(1,831	)	$	(6,591	)	$	(6,877	)
Principal payments on project debt, net of restricted funds used (C)	$	(40,071	)	$	(47,305	)	$	(129,183	)	$	(166,225	)
Distributions to partners of noncontrolling interests in subsidiaries	$	(1,408	)	$	(2,023	)	$	(11,004	)	$	(7,061	)
Non-maintenance capital expenditures (D)	$	(6,718	)	$	(5,771	)	$	(21,682	)	$	(27,281	)
Acquisition of businesses, net of cash acquired	$	(13,910	)	$	(53,265	)	$	(265,644	)	$	(73,393	)
Acquisition of noncontrolling interests in subsidiary	$	(23,700	)	$	—		$	(23,700	)	$	—
Purchase of equity interests	$	—		$	—		$	(8,938	)	$	(18,503	)
Other investment activities, net	$	(5,496	)	$	2,833		$	(15,339	)	$	(9,492	)
Purchases of property, plant and equipment:
Maintenance capital expenditures (B)	$	(7,792	)	$	(14,849	)	$	(51,937	)	$	(60,639	)
Pre-construction development projects (E)		(3,439	)		(1,208	)		(13,233	)		(1,208	)
Capital expenditures associated with technology development (F)		(1,739	)		(1,284	)		(5,008	)		(5,882	)
Capital expenditures associated with certain acquisitions (G)		(273	)		(2,851	)		(1,353	)		(17,126	)
Capital expenditures associated with SEMASS fire (H)		(1,267	)		(428	)		(2,088	)		(3,065	)
Total purchases of property, plant and equipment	$	(14,510	)	$	(20,620	)	$	(73,619	)	$	(87,920	)

(A)	Cash flow provided by operating activities was negatively affected by payments for acquisition-related costs related to acquisitions made in 2009 of $3.9 million and $4.6 million for the quarter and year ended December 31, 2009, respectively.
(B)	Capital Expenditures primarily to maintain existing facilities. Purchase of property, plant and equipment is also referred to as Capital Expenditures.
(C)	Principal payments on project debt are net of restricted funds held in trust used to pay debt principal of $23.6 million and $66.2 million for the quarters ended December 31, 2009 and 2008, respectively and $54.6 million and $21.6 million for the years ended December 31, 2009 and 2008, respectively. Principal payments on project debt excludes a project debt refinancing transaction related to a domestic energy-from-waste facility in 2009 ($63.7 million) and excludes principal repayments on working capital borrowings relating to the operations of our Indian facilities ($9.8 million).
(D)	Non-maintenance capital expenditures include certain capital expenditures made at our facilities as described in notes E through H below.
(E)	Covanta has entered into definitive agreements for the development of a 1,700 metric ton per day energy-from-waste project serving the City of Dublin, Ireland and surrounding communities. Construction commenced in the fourth quarter of 2009. Covanta incurred capital expenditures related to pre-construction activities, such as site preparation costs, for this project.
(F)	Capital Expenditures related to internal development efforts and/or agreements with multiple partners for the development, testing or licensing of new technologies related to our energy-from-waste and renewable energy business.
(G)	Capital Expenditures were incurred at four facilities that Covanta acquired in 2008 and 2007 primarily to improve the productivity or environmental performance of those facilities.
	Although, in accordance with GAAP, this spending will be recorded as a component of purchase of property, plant and equipment on Covanta’s statement of cash flows, management considers this spending as a component of the cost to acquire these businesses since these major capital improvements are required to achieve desired facility performance.
(H)	Capital Expenditures were incurred that related to the repair and replacement of assets at the SEMASS energy-from-waste facility that were damaged by a fire on March 31, 2007. The cost of repair or replacement was insured under the terms of the applicable insurance policy, subject to deductibles. Settlement of the property damage insurance claim occurred in December 2008.

Exhibit 5

Covanta Holding Corporation
Components of Diluted Earnings Per Share

	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
	2009		2008			2009			2008
			(Unaudited)
Impact of SEMASS fire and insurance recoveries, net of write-down of assets and tax (A)	$	—	$	0.03		$	—		$	0.05
Net tax impact from Grantor Trust activity (B)		0.01		(0.06	)		(0.01	)		(0.10	)
Veolia EfW acquisition-related costs, net of tax (C)		—		—			(0.02	)		—
All other		0.17		0.21			0.69			0.88
Diluted Earnings Per Share	$	0.18	$	0.18		$	0.66		$	0.83

(A)	This amount primarily includes insurance recoveries received in 2008 for business interruption losses related to the SEMASS energy-from-waste facility fire on March 31, 2007.
(B)	During 2008, Covanta recognized additional tax liabilities associated with the activity from the wind-down of the grantor trusts that arose from our predecessor insurance entities.
(C)	This amount relates primarily to acquisition-related costs associated with the Veolia EfW acquisition in 2009. Acquisition-related costs are no longer capitalized as a cost of the business acquired. Instead, these costs are expensed as they are incurred as a result of a recent accounting pronouncement which was effective January 1, 2009.

Discussion of Non-GAAP Financial Measures

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

We use a number of different financial measures, both GAAP and non-GAAP, in assessing the overall performance of our business. We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities of our most significant subsidiary, Covanta Energy Corporation, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our business. The presentations of Adjusted EBITDA and Free Cash Flow are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business.

Adjusted EBITDA and Free Cash Flow should not be considered as an alternative to net income or an alternative to cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP.

Adjusted EBITDA

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

Under these credit facilities, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of December 31, 2009. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity.

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

• maximum Covanta Energy leverage ratio of 3.75 to 1.00 (which declines to 3.50 to 1.00 for quarterly periods after September 30, 2010), which measures Covanta Energy’s Consolidated Adjusted Debt (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); and

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

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and twelve months ended December 31, 2009 and 2008, reconciled for each such periods to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP.

Free Cash Flow

Free Cash Flow is defined as cash flow provided by operating activities less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our businesses, such as amounts available to make acquisitions, invest in construction of new projects or make principal payments on debt.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and twelve months ended December 31, 2009 and 2008, reconciled for each such periods to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP.