-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dmx/399hrmmjvtg8jNaSVR8J9zWX0jZ1xnUL+R2GSzHu3DKUEYH1O5saFaZppjkH K6XZSYiXORNJ5QTpnicVOg== 0000903423-01-500255.txt : 20010816 0000903423-01-500255.hdr.sgml : 20010816 ACCESSION NUMBER: 0000903423-01-500255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COVANTA ENERGY CORP CENTRAL INDEX KEY: 0000073902 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 135549268 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03122 FILM NUMBER: 1714099 BUSINESS ADDRESS: STREET 1: 40 LANE ROAD CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2128686100 MAIL ADDRESS: STREET 1: 40 LANE ROAD CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: OGDEN CORP DATE OF NAME CHANGE: 19920703 10-Q 1 cov10q_8-14.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR |_| 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 1-3122 Covanta Energy Corporation ------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-5549268 - ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 40 Lane Road, Fairfield, NJ 07004 ---------------------------------------------------- (Address or principal executive office) (Zip code) (973) 882-9000 ---------------------------------------------------- (Registrant's telephone number including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by checkmark 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 |X| No |_| APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each of the issuer's classes of common stock, as of June 30, 2001; 49,813,747 shares of Common Stock, $.50 par value per share. PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COVANTA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED JUNE 30, JUNE 30, ------------------------ -------------------------- 2001 2000 2001 2000 ------ ------ ------ ------ (In Thousands of Dollars, Except Per Share Data) Service revenues $ 291,061 $ 296,448 $ 151,413 $ 151,599 Electricity and steam sales 176,959 126,862 93,068 67,564 Equity in income of investees and joint ventures 12,036 7,457 7,554 4,447 Construction revenues 18,031 41,727 8,608 18,881 Other sales - net 21,003 19,950 9,525 10,321 Other - net 29,730 12,188 29,730 12,170 Net gain (loss) on sale of businesses 2,192 (634) 337 ---------- ---------- ---------- ---------- Total revenues 551,012 503,998 300,235 264,982 ---------- ---------- ---------- ---------- Plant operating expenses 268,778 262,351 134,585 132,728 Construction costs 29,476 44,269 22,719 22,911 Depreciation and amortization 49,934 55,753 26,157 26,886 Debt service charges 43,089 42,866 22,354 21,098 Other operating costs and expenses 29,552 14,601 17,642 8,688 Costs of goods sold 21,541 18,075 10,611 7,894 Selling, administrative and general expenses 38,632 33,625 21,545 20,758 Project development expenses 2,912 9,841 1,186 6,479 Other - net 7,163 17,406 6,413 17,361 Write-down of net assets held for sale 1,691 1,691 ---------- ---------- ---------- ---------- Total costs and expenses 492,768 498,787 264,903 264,803 ---------- ---------- ---------- ---------- Consolidated operating income 58,244 5,211 35,332 179 Interest expense - net (14,580) (18,216) (7,140) (9,731) ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes and minority interests 43,664 (13,005) 28,192 (9,552) Income taxes (16,764) 581 (12,106) (22) Minority interests (3,027) (2,164) (1,628) (840) ---------- ---------- ---------- ---------- Income (loss) from continuing operations 23,873 (14,588) 14,458 (10,414) Loss from discontinued operations (net of income tax benefit of YTD 2000, $12,754; Qtr. 2000, $5,077) (91,799) (66,489) ---------- ---------- ---------- ---------- Net Income (Loss) 23,873 (106,387) 14,458 (76,903) ---------- ---------- ---------- ---------- Other Comprehensive Income (Loss), Net of Tax: Foreign currency translation adjustments (net of income tax benefit of, YTD 2001, $425; Qtr. 2001, $298) (2,089) (7,700) (1,365) (2,826) Unrealized Gains (Losses) on Securities: Unrealized holding losses arising during period (17) ---------- ---------- ---------- ---------- Other comprehensive income (loss) (2,089) (7,717) (1,365) (2,826) ---------- ---------- ---------- ---------- Comprehensive income (loss) $ 21,784 $ (114,104) $ 13,093 $ (79,729) ========== ========== ========== ========== Basic Earnings Per Share: Income (loss) from continuing operations $ 0.48 $ (0.30) $ 0.29 $ (0.21) Income (loss) from discontinued operations (1.85) (1.34) ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.48 $ (2.15) $ 0.29 $ (1.55) ========== ========== ========== ========== Diluted Earnings Per Share: Income (loss) from continuing operations $ 0.48 $ (0.30) $ 0.29 $ (0.21) Income (loss) from discontinued operations (1.85) (1.34) ---------- ---------- ---------- ---------- Net Income (Loss) $ 0.48 $ (2.15) $ 0.29 $ (1.55) ========== ========== ========== ==========
See notes to condensed consolidated financial statements. COVANTA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2001 December 31, 2000 --------------- ------------------- (In Thousands of Dollars) Assets Current Assets: Cash and cash equivalents $ 80,925 $ 80,643 Restricted cash 194,118 Restricted funds held in trust 115,919 96,280 Receivables (less allowances: 2001, $27,928 and 2000, $19,234) 258,829 247,914 Deferred income taxes 36,482 36,514 Prepaid expenses and other current assets 102,354 77,239 Net assets held for sale 91,239 70,614 ----------- ----------- Total current assets 685,748 803,322 Property, plant and equipment - net 1,935,056 1,789,430 Restricted funds held in trust 155,016 157,061 Unbilled service and other receivables 158,202 155,210 Unamortized contract acquisition costs 85,350 88,702 Goodwill and other intangible assets 18,826 14,944 Investments in and advances to investees and joint ventures 184,623 223,435 Other assets 66,572 63,347 ----------- ----------- Total Assets $ 3,289,393 $ 3,295,451 =========== =========== Liabilities and Shareholders' Equity Liabilities: Current Liabilities: Current portion of long-term debt $ 42,778 $ 145,289 Current portion of project debt 102,428 99,875 Current portion of convertible subordinated debentures 85,000 Accounts payable 38,714 41,106 Federal and foreign income taxes payable 507 Accrued expenses, etc. 335,805 308,681 Deferred income 41,297 38,517 ----------- ----------- Total current liabilities 646,529 633,468 Long-term debt 277,821 310,126 Project debt 1,365,257 1,290,388 Deferred income taxes 324,884 315,931 Deferred income 167,723 172,050 Other liabilities 140,934 158,992 Minority interests 47,660 34,290 Convertible subordinated debentures 63,650 148,650 ----------- ----------- Total Liabilities 3,034,458 3,063,895 ----------- ----------- Shareholders' Equity: Serial cumulative convertible preferred stock, par value $1.00 per share; authorized, 4,000,000 shares; shares outstanding: 35,034 in 2001 and 35,582 in 2000, net of treasury shares of 29,820 in 2001 and 2000 35 36 Common Stock, par value $.50 per share; authorized, 80,000,000 shares; shares outstanding: 49,813,747 in 2001 and 49,645,459 in 2000, net of treasury shares of 4,123,996 and 4,265,115, respectively 24,907 24,823 Capital surplus 188,207 185,681 Notes receivable from key employees for common stock issuance (1,049) (1,049) Unearned restricted stock compensation (981) Earned surplus 49,669 25,829 Accumulated other comprehensive income (5,853) (3,764) ----------- ----------- Total Shareholders' Equity 254,935 231,556 ----------- ----------- Total Liabilities and Shareholders' Equity $ 3,289,393 $ 3,295,451 =========== ===========
See notes to condensed consolidated financial statements. COVANTA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED YEAR ENDED June 30, 2001 December 31, 2000 ----------------------- ------------------------ SHARES AMOUNTS SHARES AMOUNTS -------- --------- -------- --------- (In Thousands of Dollars, Except Per Share Amounts) Serial Cumulative Convertible Preferred Stock, Par Value $1.00 Per Share; Authorized, 4,000,000 Shares: Balance at beginning of period 65,402 $ 66 69,066 $ 69 Shares converted into common stock (548) (1) (3,664) (3) ---------- ---------- ---------- ---------- Total 64,854 65 65,402 66 Treasury shares (29,820) (30) (29,820) (30) ---------- ---------- ---------- ---------- Balance at end of period (aggregate involuntary liquidation value - 2001, $706) 35,034 35 35,582 36 ---------- ---------- ---------- ---------- Common Stock, Par Value $.50 Per Share; Authorized, 80,000,000 Shares: Balance at beginning of period 53,910,574 26,956 53,873,298 26,937 Exercise of stock options 23,898 12 Shares issued for acquisition 15,390 8 Conversion of preferred shares 3,271 1 21,886 11 ---------- ---------- ---------- ---------- Total 53,937,743 26,969 53,910,574 26,956 ---------- ---------- ---------- ---------- Treasury shares at beginning of period 4,265,115 2,133 4,405,103 2,203 Issuance of restricted stock (102,153) (51) (139,988) (70) Exercise of stock options (38,966) (20) ---------- ---------- ---------- ---------- Treasury shares at end of period 4,123,996 2,062 4,265,115 2,133 ---------- ---------- ---------- ---------- Balance at end of period 49,813,747 24,907 49,645,459 24,823 ---------- ---------- ---------- ---------- Capital Surplus: Balance at beginning of period 185,681 183,915 Exercise of stock options 776 Issuance of restricted stock 1,751 1,602 Shares issued for acquisition 172 Conversion of preferred shares (1) (8) ---------- ---------- Balance at end of period 188,207 185,681 ---------- ---------- Notes receivable from key employees for common stock issuance (1,049) (1,049) ---------- ---------- Unearned restricted stock compensation: Issuance of restricted common stock (1,470) Amortization of unearned restricted stock compensation 489 ---------- ---------- Balance at end of period (981) ---------- ---------- Earned Surplus: Balance at beginning of period 25,829 255,182 Net income (loss) 23,873 (229,285) ---------- ---------- Total 49,702 25,897 ---------- ---------- Preferred dividends - per share 2001, $.9375, and 2000, $1.875 33 68 ---------- ---------- Balance at end of period 49,669 25,829 ---------- ---------- Cumulative Translation Adjustment - Net (5,444) (3,355) ---------- ---------- Minimum Pension Liability Adjustment (409) (409) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY $ 254,935 $ 231,556 ========== ==========
See notes to condensed consolidated financial statements. COVANTA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------- 2001 2000 -------- -------- (In Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 23,873 $ (106,387) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities of Continuing Operations: Loss from discontinued operations 91,799 Depreciation and amortization 49,934 55,753 Deferred income taxes 8,627 (1,188) Provision for doubtful accounts 13,923 1,184 Other 1,676 3,717 Management of Operating Assets and Liabilities: Decrease (Increase) in Assets: Receivables (21,189) (6,812) Inventories 110 Other assets (37,957) (1,183) Increase (Decrease) in Liabilities: Accounts payable (19,521) (17,399) Accrued expenses 30,190 (37,397) Deferred income (8,476) (10,138) Other liabilities (10,196) 11,885 --------- ---------- Net cash provided by (used in) operating activities of continuing operations 30,884 (16,056) --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of businesses 13,841 4,848 Proceeds from sale of property, plant, and equipment 447 3,626 Proceeds from sale of marketable securities available for sale 3,692 Investments in facilities (32,652) (17,908) Other capital expenditures (6,060) (9,645) Decrease in other receivables 3,212 3,501 Distributions from investees and joint ventures 20,033 5,828 Increase in investments in and advances to investees and joint ventures (14,485) (19,740) --------- ---------- Net cash used in investing activities of continuing operations (15,664) (25,798) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings for facilities 61,605 Other new debt 15,853 1,755 Decrease (increase) in funds held in trust (17,591) 17,369 Payment of debt (205,756) (95,444) Dividends paid (33) (34) Decrease (Increase) in restricted cash 194,118 (177,548) Proceeds from exercise of stock options 808 Other (2,337) (1,904) --------- ---------- Net cash used in financing activities of continuing operations (14,938) (194,201) --------- ---------- Net cash provided by discontinued operations 254,588 --------- ---------- Net Increase in Cash and Cash Equivalents 282 18,533 Cash and Cash Equivalents at Beginning of Period 80,643 101,020 --------- ---------- Cash and Cash Equivalents at End of Period $ 80,925 $ 119,553 ========= ==========
See notes to condensed consolidated financial statements. ITEM 1 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments consisting of normal recurring accruals necessary for a fair presentation of the operating results have been included in the statements. Covanta Energy Corporation ("Covanta" or the "Company") recorded total interest expense and total interest income of $9.5 million and $2.3 million, and $11.4 million and $1.7 million for the three-month periods ended June 30, 2001 and 2000, respectively. Total interest expense and total interest income was $20.8 million and $6.2 million, and $20.9 million and $2.7 million for the six-month periods ended June 30, 2001 and 2000, respectively. On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" and has identified all derivatives within its scope. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. All derivatives are required to be recorded in the balance sheet as either an asset or liability measured at fair value, with changes in fair value recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the statement of income, and requires that a company must formally document, designate and assess the effectiveness of derivatives that receive hedge accounting. The Company's policy is to enter into derivatives to protect the Company against fluctuations in interest rates and foreign currency exchange rates as they relate to specific assets and liabilities. The Company's policy is to not enter into derivative instruments for speculative purposes. The adoption of SFAS No. 133 as of January 1, 2001 did not have a material impact on the results of operations of the Company and increased both assets and liabilities recorded on the January 1, 2001 balance sheet by approximately $12.3 million. The $12.3 million relates to the Company's interest rate swap agreement that economically fixes the interest rate on certain adjustable-rate revenue bonds reported in Project debt. The asset and liability recorded at January 1, 2001 were decreased by $.3 million during the six months ended June 30, 2001 to adjust for a decrease in the swap's fair value at June 30, 2001. The swap agreement was entered into in September 1995 and expires in January 2019. Any payments made or received under the swap agreement, including fair value amounts upon termination, are included as an explicit component of the client community's obligation under the related service agreement. Accordingly, all payments under the swap agreement are a pass-through to the client community. Under the swap agreement, the Company will pay an average fixed rate of 9.8% for 2001 through January 2005 and 5.18% thereafter through January 2019, and will receive a floating rate based on current municipal interest rates, similar to the rate on the adjustable-rate revenue bonds, unless certain triggering events occur (primarily credit events), which result in the floating rate converting to either a set percentage of LIBOR or a set percentage of the BMA Municipal Swap Index, at the option of the swap counterparty. In the event the Company terminates the swap prior to its maturity, the floating rate used for determination of settling the fair value of the swap would also be based on a set percentage of one of these two rates at the option of the counterparty. For the three-month periods ended June 30, 2001 and 2000, the floating rates on the swap averaged 3.05% and 4.3%, respectively. The notional amount of the swap at June 30, 2001 and December 31, 2000 was $80.2 million and is reduced in accordance with the scheduled repayments of the applicable revenue bonds. Currently there are ongoing discussions surrounding the implementation and interpretation of SFAS No. 133 by the Financial Accounting Standards Board's Derivatives Implementation Group. The Company implemented SFAS No. 133 based on the current rules and guidance in place as of January 1, 2001 and through June 30, 2001. In July 2001, the Financial Accounting Standard Board ("FASB"), issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and prohibits use of the pooling-of-interests method. In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS No. 142 requires upon adoption the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption and to evaluate for impairment the carrying value of goodwill on an annual basis thereafter. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is currently assessing but has not yet determined the effect of adoption of SFAS Nos. 141 and 142 on its financial position and results of operations. The accompanying financial statements for prior periods have been reclassified as to certain amounts, including various revenues and expenses, to conform with the 2001 presentation, which is more tailored for a stand-alone energy company. Discontinued Operations and Assets Held for Sale: On September 17, 1999, the Company announced that it intended to sell its aviation and entertainment businesses and on September 29, 1999, the Board of Directors of the Company formally adopted a plan to sell the operations of its aviation and entertainment units, which were previously reported as separate business segments. As a result of the adoption of this plan, the financial statements present the results of these operations as discontinued until December 31, 2000. At December 31, 2000, the Company had substantially completed its sales of the discontinued operations and, therefore, reclassified the remaining unsold aviation and entertainment businesses in the accompanying December 31, 2000 balance sheet to present those businesses as net assets held for sale. Those businesses include: the venue management businesses at the Arrowhead Pond Arena in Anaheim, California, and the Corel Centre near Ottawa, Canada; the Company's interest in certain entertainment assets in Argentina; its aviation fueling business; and the Company's interests in aviation businesses in Italy, Spain and Colombia. The aviation business in Italy was sold in February 2001 for approximately $10.0 million, and the Company's interest in the aviation business in Spain was sold in May 2001 for approximately $1.8 million. In July 2001, the Company sold its interest in the airport privatization business in Colombia, South America for $9.7 million and reached agreement to sell its aviation fueling business. These non-core businesses are reported in the "Other" segment at December 31, 2000 and for the six months ended June 30, 2001. Other noncore businesses included in Net Assets Held for Sale are Datacom, Inc. (Datacom), a contract manufacturing company located in Mexico, and Compania General de Sondeos, S.A. (CGS), an environmental and infrastructure company in Spain. Datacom and CGS are reported in the Other segment and Energy segment, respectively, in the six-month periods ended June 30, 2001 and 2000. The Company expects to sell all of these remaining businesses during the next twelve months. Revenues and loss from discontinued operations (expressed in thousands of dollars) for the three months and six months ended June 30, 2000, were as follows: Six Months Three Months Ended June 30 Ended June 30 ------------- ------------- Revenues $303,049 $147,444 ======== ======== Loss Before Income Taxes and Minority Interests (104,466) (71,433) Benefit for Income Taxes (12,754) (5,077) Minority Interests 87 133 -------- -------- Loss from Discontinued Operations $(91,799) $(66,489) ======== ======== Revenues and loss before income taxes from net assets held for sale (expressed in thousands of dollars) for the three months and six months ended June 30, 2001, which are included in continuing operations in 2001, were as follows: Six Months Three Months Ended June 30 Ended June 30 ------------- ------------- Revenues $ 52,227 $ 26,685 ========= ========= Loss Before Income Taxes $ (5,128) $ (3,863) ========= ========= On January 1, 2001, the Company stopped recording depreciation and amortization expense related to net assets held for sale, which had the effect of decreasing the loss before income taxes by approximately $2.4 million for the six months ended June 30, 2001. Also, in the second quarter of 2001, Covanta management considered the status of recent offers and negotiations relating to the Company's investment in Australian venue management businesses, and current economic conditions, and adjusted its estimate of the proceeds to be received from its sale and recorded an additional write-down of net assets held for sale of $1.7 million. Net assets held for sale (expressed in thousands of dollars) at June 30, 2001 and December 31, 2000 were as follows: June 30, 2001 December 31, 2000 ------------- ----------------- Current Assets $ 74,337 $ 73,237 Property, Plant and Equipment - net 21,623 19,939 Other Assets 59,213 73,310 Notes Payable and Current Portion of Long-Term Debt (2,768) (28,651) Other Current Liabilities (48,131) (52,053) Long-Term Debt (550) (670) Other Liabilities (12,485) (14,498) ----------- ----------- Net Assets Held for Sale $ 91,239 $ 70,614 =========== =========== The increase in net assets held for sale during the six months ended June 30, 2001 is due mainly to the contribution of $25.0 million to an entertainment operation to pay certain of that operation's debt in connection with the closing of the Master Credit Facility. Special Charges: As a result of the Company's Board of Directors' plan to dispose of its aviation and entertainment businesses and close its New York City headquarters, and its plan to exit other noncore businesses, the Company incurred various expenses in 1999 which were recognized in its continuing and discontinued operations. In addition, the Company incurred various expenses in 2000 relating to its decisions to reorganize its development office in Hong Kong and its Energy headquarters in New Jersey. Certain of those charges related to severance costs for its New York City employees and Energy employees, contract termination costs of its former Chairman and Chief Executive Officer, office closure costs, and professional services related to the Energy reorganization, will mostly be paid out over the next two years. The following is a summary of those costs and related payments during the three months ended June 30, 2001 (expressed in thousands of dollars): AMOUNTS PAID DURING THREE BALANCE AT MONTHS ENDED BALANCE AT MARCH 31, 2001 JUNE 30, 2001 JUNE 30, 2001 -------------- ------------- ------------- Severance for approximately 200 employees $ 24,500 $ 3,000 $ 21,500 Severance for approximately 80 Energy employees 8,400 3,600 4,800 Contract termination settlement 400 400 Bank fees 2,100 2,100 Office closure costs 3,500 3,500 Professional services relating to Energy reorganization 200 200 0 ------------ ----------- ----------- $ 39,100 $ 6,800 $ 32,300 ============ =========== ===========
Receivables from California Utilities: Recent events in the California energy markets affected the state's two largest utilities and resulted in delayed payments for energy delivered by the Company's facilities in late 2000 and early 2001. Pacific Gas & Electric Company ("PG&E") and Southern California Edison Company ("SCE") both suspended payments under long term power purchase agreements in the beginning of 2001. On March 26, 2001 the California Public Utilities Commission ("CPUC") approved a substantial rate increase and directed the utilities to make payment to suppliers for current energy deliveries. SCE has made payments for energy delivered since March 26, 2001. On April 6, 2001, PG&E filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Since that time PG&E is also in compliance with the CPUC order and is making payments for current energy deliveries. In mid-June the CPUC issued an order declaring as reasonable and prudent any power purchase amendment at a certain fixed-price for a five-year term. On June 18, 2001 and July 31, 2001 the Company entered into several agreements and amendments to power purchase agreements with SCE which contained the CPUC approved pricing for a term of five years, to commence upon the occurrence of certain events. In addition, in June SCE paid 10% of the outstanding receivables and agreed to a timetable by which the remaining 90% would be paid, which outstanding amount will earn interest. In July, the Company also entered into agreements with similar terms with PG&E. These agreements also contain the CPUC approved price and term, both of which are effective immediately. Unlike SCE, PG&E made no cash payments but did agree that the amount owed to the Company will earn interest at a rate to be determined by the Bankruptcy Court. PG&E agreed to assume the Company's power purchase agreements and elevate the outstanding payable to priority administrative claim status. The amount of the claim and interest will be settled prior to the finalization of PG&E's plan of reorganization. The Bankruptcy court approved the agreements, the power purchase agreements and the assumption of the contracts on July 13, 2001. As of June 30, 2001, the Company's outstanding net receivables from these two utilities totaled approximately $58.2 million (including the Company's 50% interest in several partnerships) net of reserves of approximately $19.4 million. Of those net receivables, approximately $13.7 million was due from PG&E. Disagreements with both SCE and PG&E still exist regarding the valuation of the pre-March 26, 2001 receivables. Resolution of these disagreements and payment of the receivables is likely to be received only upon the resolution of California's energy crisis and PG&E's bankruptcy. Therefore, the amounts received and the timeliness of payment are subject to legal, regulatory, and legislative developments. Although this matter is not free of doubt, the Company believes it will ultimately receive payments in full of these receivables. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATIONS Revenues and income (loss) from continuing operations by segment for the three months and the six months ended June 30, 2001 and 2000 (expressed in thousands of dollars) were as follows: Information Concerning Six Months Ended June 30, Three Months Ended June 30, Business Segments 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------- Revenues: Energy $ 494,833 $ 479,838 $ 270,946 $ 254,660 Other 54,609 24,160 27,719 10,322 Corporate 1,570 1,570 --------- --------- --------- --------- Total Revenues $ 551,012 $ 503,998 $ 300,235 $ 264,982 ========= ========= ========= ========= Income (loss) from Operations: Energy $ 81,753 $ 48,957 $ 53,866 $ 35,729 Other (10,499) (11,435) (9,274) (8,824) --------- --------- --------- --------- Total Income from Operations 71,254 37,522 44,592 26,905 Corporate unallocated income and expenses-net (13,010) (32,311) (9,260) (26,726) Interest-net (14,580) (18,216) (7,140) (9,731) --------- --------- --------- --------- Income (loss) from continuing operations before income taxes and minority interests $ 43,664 $ (13,005) $ 28,192 $ (9,552) ========= ========= ========= =========
Quarter Ended June 30, 2001 vs. Quarter Ended June 30, 2000 Continuing Operations: Revenues for the quarter ended June 30, 2001 were $35.3 million higher than the comparable period of 2000 primarily reflecting an increase in Other segment revenues of $17.4 million, and an increase in Energy segment revenues of $16.3 million. Service revenues in 2001 decreased $.2 million compared to the quarter ended June 30, 2000. Energy service revenues in 2001 decreased $15.7 million primarily due to a decrease of $21.3 million related to the environmental consulting business which was sold in November 2000, partially offset by an increase of $5.6 million due mainly to contractual annual escalation adjustments at many plants, increased growth in the supplemental waste business and a water service operating agreement with the city of Bessemer, Alabama, which began in October 2000. The Other segment's service revenues increased $15.6 million due to the inclusion in continuing operations of the unsold aviation and entertainment businesses in 2001, which were included in discontinued operations in 2000. Electricity and steam sales revenue increased $25.5 million compared to the second quarter of 2000, attributable mainly to our Samalpatti, India project commencing operation, and increased production and favorable energy pricing experienced primarily at plants in California as well as increased pricing experienced at certain waste-to-energy plants with merchant energy capacity. Equity in income of investees and joint ventures for the three months ended June 30, 2001 increased $3.1 million compared to the same period in 2000. The increase is primarily attributable to the Quezon project in the Philippines, which commenced operations in the second quarter of 2000, and net equity income related to unsold aviation and entertainment joint ventures. Construction revenues for the three months ended June 30, 2001 decreased $10.3 million from the comparable period in 2000. The decrease is attributable to the completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990, the decision to wind-down activities in the civil construction business, and the completion of construction of a wastewater project in the third quarter of 2000. Other sales - net decreased $.8 million compared to the second quarter of 2000 due mainly to decreased activity in the operations of Datacom associated with Genicom Corporation (Genicom), its major customer. Other revenues - net increased $17.6 million compared to the same period in 2000. Other revenues in 2001 included a $19.6 million insurance settlement and other matters related to the Lawrence, Massachusetts facility, $5.7 million of development fees and other matters related to the Quezon plant in the Philippines, and insurance proceeds related to a waste wood plant. 2000 included a $12.2 million insurance settlement related to the Lawrence facility. Net gain on sale of businesses for the three months ended June 30, 2001 included a gain of $0.6 million representing an adjustment on the sale of the aviation fixed base operations, and a loss of $0.3 million on the sale of the ground handling business in Spain. Total costs and expenses in the second quarter of 2001 increased by $.1 million compared to the first quarter of 2000. This increase reflects an increase in the Other segment of $19.4 million due mainly to the inclusion of unsold aviation and entertainment businesses in 2001, partially offset by a decrease in the Energy segment of $1.9 million and a decrease in corporate unallocated overhead of $17.5 million. The Energy segment's plant operating expenses increased by $1.9 million in the three months ended in June 30, 2001 compared to the same period of 2000. Operating expenses increased by approximately $19.7 million primarily due to increased fuel costs attributable to higher natural gas and oil prices, higher generation, primarily at waste-wood plants in California, higher maintenance costs and the commencement of operations of the Samalpatti project. This increase was partially offset by a decrease of $17.8 million in the environmental business, which was sold in November of 2000. Construction costs decreased by $.2 million for the three months ended 2001 compared to the comparable period of 2000. The decrease is due to the completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990 and completion of the construction of a wastewater project in the third quarter of 2000, partially offset by an increase in the civil construction business (which management anticipates will cease during 2002) principally related to cost overruns on one individual project. Depreciation and amortization expense decreased by $.7 million in the second quarter 2001 compared to the comparable period in 2000. This decrease is primarily related to a decrease in corporate depreciation and amortization, which in 2000 included $2.9 million of accelerated amortization of a new data processing system. Also, Energy's depreciation and amortization expense increased by $2.7 million in the three months ended June 30, 2001 compared to 2000 primarily due to commencements of operations of the Samalpatti project in 2001. Debt service charges increased by $1.3 million in the second quarter of 2001 versus the comparable period of 2000. The increase is primarily due to project debt outstanding related to the Samalpatti project, offset by lower debt service expense due to lower project debt related to various facilities caused by redemption and maturity of bonds. The Energy segment had one interest rate swap agreement outstanding that resulted in additional debt service expense of $.4 million and $.2 million for the three month periods ended June 30, 2001 and 2000, respectively. Other operating costs and expenses for the first three months of 2001 increased $9.0 million due to activity in the Other segment. This increase was due mainly to the inclusion of unsold aviation and entertainment businesses in 2001, which were included in discontinued operations in 2000. This increase was partially offset by the effect of the sale of Applied Data Technology, Inc. (ADTI) in 2000. Costs of goods sold for the second quarter of 2001 increased $2.7 million compared to the second quarter of 2000 due to activity in the Other segment, mainly increased activity and increasing product costs at Datacom. Selling, administrative and general expenses for the second quarter of 2001 increased $.8 million compared to the same period of 2000 due mainly to the inclusion in continuing operations of the unsold aviation and entertainment businesses in 2001. That increase was partially offset by a decrease in unallocated corporate overhead expenses that was fundamentally the result of a decrease in most overhead costs due to the wind-down of the Company's New York office. Selling, administrative and general expenses for the Energy segment decreased $2.2 million compared to the second quarter of 2000 principally due to the sale in November 2000 of the environmental consulting business. Project development expenses for the three months ended June 30, 2001 decreased by $5.3 million from the same period in 2000. The decrease is mainly due to a decrease in overhead and other costs related to development in the Asian market. Other expenses-net decreased $10.9 million compared to the second quarter of 2000. This decrease is due mainly to costs incurred in 2000 representing fees and expenses incurred in connection with the waiver by certain creditors of certain covenants and the extension of credit through July 2000, and fees and expenses incurred in connection with financing efforts to support the then-proposed recapitalization plan. In 2001, the effect of these 2000 costs was partially offset by the amortization of the Company's costs in securing its Revolving Credit and Participation Agreement (the "Agreement") in March 2001. Such costs are being amortized over one year. Write-down of net assets held for sale in the three months ended June 30, 2001 relates to the Company's investment in its Australian venue management business. In the second quarter of 2001, Covanta management considered the status of recent offers and negotiations relating to that business, and current economic conditions, and recorded a pre-tax loss of $1.7 million. Interest expense-net in the second quarter of 2001 decreased $2.6 million compared to the same period of 2000. Corporate interest expense-net decreased $1.2 million primarily due to lower average debt outstanding and lower rates on variable-rate debt. The Energy segment's interest expense - net decreased by $1.7 million in 2001 compared to 2000 due to lower debt outstanding caused by payments and an increase in interest income on cash balances. The effective tax rate for the three months ended June 30, 2001 was 42.9% compared to (0.2%) for the same period of 2000. This increase in the effective rate was primarily due to pretax earnings in the current year period, versus pretax losses in the 2000 period for which certain tax benefits were not recognized, and increased domestic income resulting in an overall higher effective tax rate. Discontinued Operations: In the second quarter of 2000, all aviation and entertainment businesses were accounted for as discontinued operations while such unsold businesses were accounted for in continuing operations in the second quarter of 2001. In the second quarter of 2000 the loss from discontinued operations totaled $66.5 million. The loss before interest and taxes from discontinued operations was $70.2 million, primarily reflecting accrued net losses of $57.8 million on the disposal of aviation and entertainment businesses, a provision of $8.5 million for additional estimated pretax net operating losses from July 1, 2000 through the anticipated dates of sales of those remaining businesses, legal, accounting, consulting and overhead expenses incurred in connection with the discontinuance of those businesses and accelerated depreciation in connection with shortened estimated useful lives of management information systems. Six Months Ended June 30, 2001 vs. Six Months Ended June 30, 2000 Continuing Operations: Revenues for the six months ended June 30, 2001 were $47.0 million higher than the comparable period of 2000 primarily reflecting an increase in Other segment revenues of $30.4 million, and an increase in Energy segment revenues of $15.0 million. Service Revenues in 2001 decreased $5.4 million compared to the first half of 2000. Energy service revenues in 2001 decreased $30.7 million primarily due to a decrease of $39.9 million related to the environmental consulting business which was sold in November 2000, partially offset by an increase of $9.2 million due mainly to contractual annual escalation adjustments at many plants, increases in the supplemental waste business, and a water service operating agreement with the city of Bessemer which began in October 2000. The Other segment's service revenues increased $25.3 million mainly due to the inclusion in continuing operations of $30.2 million related to unsold aviation and entertainment businesses in 2001, which were included in discontinued operations in 2000, partially offset by a decrease of $4.9 million due to the sale of ADTI in the first quarter of 2000. Electricity and steam sales revenue increased $50.1 million compared to the same period in 2000, attributable mainly to the Samalpatti project commencing operation and increased production and favorable energy pricing experienced primarily at plants in California as well as increased pricing experienced at certain waste-to-energy plants with merchant energy capacity. Equity in income of investees and joint ventures for the six months ended June 30, 2001 increased $4.6 million compared to the same period in 2000. The increase is primarily attributable to the Quezon project in the Philippines, which commenced operations in the second quarter of 2000. Construction revenues for the six months ended June 30, 2001 decreased $23.7 million from the comparable period in 2000. The decrease is attributable to the completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990, the decision to wind-down activities in the civil construction business, and the completion of construction of a wastewater project in the third quarter of 2000. Other sales - net increased $1.1 million compared to the first half of 2000 due to increased activity in the operations of Datacom. Other revenues - net increased $17.5 million compared to the same period in 2000. Other revenues in 2001 included a $19.6 million insurance settlement and other matters related to the Lawrence, Massachusetts facility, $5.7 million of development fees and other matters related to the Quezon plant in the Philippines, and insurance proceeds related to a waste wood plant. 2000 included a $12.2 million insurance settlement related to the Lawrence facility. Net gain on sale of businesses for the six months ended June 30, 2001 included the gain of $1.9 million on the sale of the aviation ground handling operations at the Rome, Italy airport and a gain of $.6 million representing an adjustment on the sale of the aviation fixed base operations, partially offset by a loss of $.3 million on the sale of the ground handling business in Spain. The net loss on sale of businesses in the comparable period of 2000 included a loss of $.6 million on the sale of ADTI. Total costs and expenses in the first half of 2001 decreased by $6.0 million compared to the first six months of 2000. This decrease reflects a decrease in the Energy segment of $17.8 million and a decrease in corporate unallocated overhead of $19.3 million, partially offset by an increase in the Other segment of $31.1 million due mainly to the inclusion of unsold aviation and entertainment businesses in 2001. The Energy segment's plant operating expenses increased by $6.4 million in the six months ended June 30, 2001 compared to the same period of 2000. Operating expenses increased by approximately $39.8 million primarily due to increased fuel costs attributable to higher natural gas and oil prices, higher generation, primarily at waste-wood plants in California, the effect of increased provisions for doubtful accounts of approximately $8.0 million related mainly to receivables from California utilities (see Liquidity/Cash Flow below) and the commencement of operations at the Samalpatti project. This increase was partially offset by a decrease of $33.4 million in the environmental business, which was sold in November of 2000. Construction costs decreased by $14.8 million for the six months ended 2001 compared to the comparable period of 2000. The decrease is due to the completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990, and completion of the construction of a wastewater project in the third quarter of 2000, partially offset by an increase in the civil construction business (which management anticipates will cease in early 2002) principally related to cost overruns on one individual project. Depreciation and amortization expense decreased by $5.8 million in the first half of 2001 compared to the comparable period in 2000. This decrease is primarily related to a decrease of $7.1 million in corporate and other segment depreciation and amortization, which in 2000 included $5.7 million of accelerated amortization of a new data processing system. Also, Energy's depreciation and amortization expense increased by $1.3 million in the six months ended June 30, 2001 compared to 2000 primarily due to commencement of operation of the Samalpatti project in 2001, partially offset by the effect of accelerated depreciation in 2000 related to certain air pollution control equipment being replaced in connection with the Clean Air Act Amendments of 1990. Debt service charges increased by $.2 million in the first half of 2001 compared to the comparable period of 2000. The increase is primarily due to project debt outstanding related to the Samalpatti project, partially offset by lower debt service expense due to lower project debt related to various facilities cause by redemption and maturity of bonds. The Energy segment had one interest rate swap agreement outstanding that resulted in additional debt service expense of $.9 million and $.6 million for the six month periods ended June 30, 2001 and 2000, respectively. Other operating costs and expenses for the first six months of 2001 increased $15.0 million due to activity in the Other segment. This increase was due mainly to the inclusion of unsold aviation and entertainment businesses in 2001, which were included in discontinued operations in 2000. This increase was partially offset by the effect of the sale of ADTI in 2000. Costs of goods sold for the first half of 2001 increased $3.5 million compared to the first half of 2000 due to activity in Other segment, mainly increased activity and increasing product costs at Datacom. Selling, administrative and general expenses for the first six months of 2001 increased $5.0 million compared to the same period of 2001 due mainly to the inclusion in continuing operations of the unsold aviation and entertainment businesses in 2001. That increase was partially offset by a decrease in unallocated corporate overhead expenses that was fundamentally the result of a decrease in most overhead costs due to the wind-down of the Company's New York office. Selling, administrative and general expenses for the Energy segment decreased $4.0 million compared to the first half of 2000 principally due to the sale in November 2000 of the environmental consulting business. Project development expenses in the six months ended June 30, 2001 decreased by $6.9 million from the same period in 2000. The decrease is mainly due to a decrease in overhead and other costs related to development in Asian market. Other expenses-net decreased $10.2 million compared to the first half of 2000. This increase is due mainly to costs incurred in 2000 representing fees and expenses incurred in connection with the waiver by certain creditors of certain covenants and the extension of credit through July 2000, and fees and expenses incurred in connection with financing efforts to support the then-proposed recapitalization plan. In 2001, the effect of these 2000 costs was partially offset by the amortization of the Company's costs in securing its Revolving Credit and Participation Agreement (the "Agreement") in March 2001. Such costs are being amortized over one year. Write-down of net assets held for sale in the six months ended June 30, 2001 relates to the Company's investment in its Australian venue management business. In the second quarter of 2001, Covanta management considered the status of recent offers and negotiations relating to that business, and current economic conditions, and recorded a pre-tax loss of $1.7 million. Interest expense-net in the first half of 2001 decreased $3.6 million compared to the same period of 2000. Corporate interest expense-net decreased $4.0 million primarily due to lower average debt outstanding and lower rates on variable-rate debt, and an increase in interest income on cash balances. The Energy segment's interest expense - net decreased by $.8 million in 2001 compared to 2000 due mainly to interest income on cash balances partially offset by interest on debt associated with the Quezon project, which became operational in the second quarter of 2000. This debt was fully paid in March 2001. These decreases were partially offset by the Other segment's interest expense-net which increased $1.2 million due to the inclusion in continuing operations of the unsold aviation and entertainment businesses in 2001. The effective tax rate for the six months ended June 30, 2001 was 38.4% compared to 4.5% for the same period of 2000. This increase in the effective rate was primarily due to pretax earnings in the current year period, versus pretax losses in the 2000 period for which certain tax benefits were not recognized, and increased domestic income resulting in an overall higher effective tax rate. Discontinued Operations: In the first half of 2000 the loss from discontinued operations totaled $91.8 million. The loss before interest and taxes from discontinued operations was $102.1 million, primarily reflecting accrued net losses on the disposal of aviation and entertainment businesses, a provision for additional estimated pretax net operating losses from July 1, 2000 through the anticipated dates of sales of those remaining businesses legal, accounting, consulting and overhead expenses incurred in connection with the discontinuance of those businesses, and accelerated depreciation in connection with shortened estimated useful lives of management information systems. Property, plant and equipment - net increased $145.6 million during the first six months of 2001 due mainly to the consolidation of two energy project companies that were previously accounted for under the equity method. CAPITAL INVESTMENTS AND COMMITMENTS For the six months ended June 30, 2001, capital investments amounted to $38.7 million, virtually all of which related to Energy. At June 30, 2001, capital commitments amounted to $10.1 million for normal replacement and growth in Energy and $.1 million for Corporate and Other operations. Other capital commitments for Energy as of June 30, 2001 amounted to approximately $12.2 million. This amount includes a commitment to pay, in 2008, $10.6 million for a service contract extension at an energy facility. In addition, this amount includes $1.6 million for an oil-fired project in India. Covanta and certain of its subsidiaries have issued or are party to performance bonds and guarantees and related contractual obligations undertaken mainly pursuant to agreements to construct and operate certain energy, entertainment and other facilities. In the normal course of business, they are involved in legal proceedings in which damages and other remedies are sought. Management does not expect that these contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business will have a material adverse effect on Covanta's Consolidated Financial Statements. (See Liquidity/Cash Flow below.) The Company did not include its interests in either the Arrowhead Pond in Anaheim, California or the Corel Centre near Ottawa, Canada as part of the sale of its Venue Management business in June 2000. The Company manages the Arrowhead Pond under a long-term contract. As part of this contract, the Company is a party, along with the City of Anaheim, to a reimbursement agreement, in connection with a letter of credit in the amount of approximately $119.0 million. Under the reimbursement agreement, the Company is responsible for draws, if any, under the letter of credit caused by the Company's failure to perform its duties under its management contract at that venue which include its obligation to pay shortfalls, if any, if net revenues of the venue are insufficient to pay debt service underlying the venue. The Company is exploring alternatives for disposing of these operations along with the reimbursement agreement and related obligations. During 1994, a subsidiary of Covanta entered into a 30-year facility management contract at the Corel Centre pursuant to which it agreed to advance funds to a customer, and if necessary, to assist the customer's refinancing of senior secured debt incurred in connection with the construction of the facility. Covanta is obligated to purchase such senior debt in the amount of $89.7 million on December 23, 2002, if the debt is not refinanced prior to that time. Covanta is also required to repurchase the outstanding amount of certain subordinated secured debt of such customer in the amount of $47.6 million on December 23, 2002. In addition, as of June 30, 2001, the Company had guaranteed $3.3 million of senior secured term debt of an affiliate and principal tenant (the NHL Ottawa Senators) of this customer. Further, Covanta is obligated to purchase $19.8 million of the tenant's secured subordinated indebtedness on January 29, 2004, if such indebtedness has not been repaid or refinanced prior to that time. The Company is also exploring alternatives for disposing of these operations along with the related obligations. Management does not expect that these arrangements will have material adverse effect on Covanta's Consolidated Financial Statements. LIQUIDITY/CASH FLOW Net cash provided by operating activities of continuing operations for the six months ended June 30, 2001 was $30.9 million compared to $16.1 million in cash used by operating activities in the first half of 2000, resulting in an increase of $47.0 million. This increase primarily reflects an increase in net income from continuing operations of $38.5 million, an increase in accrued expenses of $67.6 million and increases in deferred income taxes and provisions for doubtful accounts of $9.8 million and $12.7 million, respectively. These increases were partially offset by increases in other assets and receivables of $36.8 million and $14.4 million, respectively, and a decrease in other liabilities of $22.1 million. Net cash used in investing activities of continuing operations was $10.1 million lower than the comparable period of 2000 primarily relating to an increase in distributions from investees and joint ventures of $14.2 million, an increase in proceeds from sales of businesses of $9.0 million, and a decrease in investments in and advances to investees and joint ventures of $5.3 million. These decreases in cash used in investing activities were partially offset by an increase in investments in facilities of $14.7 million. Net cash used in financing activities of continuing operations for the first half of 2001 was $14.9 million compared to cash used in financing activities of $194.2 million in the first half of 2000. This decrease in cash used of $179.3 million is due primarily to a decrease in restricted cash of $194.1 (used to repay debt) in the 2001 period and an increase in restricted cash of $177.5 million in the 2000 period. This net increase in cash provided was partially offset by a decrease in outstanding debt of $157.8 million, and an increase in funds held in trust of $35.0 million. In addition, cash provided by discontinued operations in the six months of 2000 totaled $254.6 million representing mainly proceeds from the sales of Entertainment businesses partially offset by operating losses of discontinued businesses. During the first six months of 2001, the Company sold its aviation ground handling business in Rome, Italy for approximately $10.0 million and its interest in the aviation business in Spain for approximately $1.8 million. In July 2001, the Company sold its interest in the airport privatization business in Colombia, South America for $9.7 million. In connection with several of the sales of its noncore businesses, the Company is also entitled to certain deferred payments, subject to certain contingencies. In addition, the Company has contingent obligations under most of the related sale agreements with respect to liabilities arising before and, in some cases, after the consummation of the sale. At June 30, 2001, the Company had approximately $88 million in cash and cash equivalents, of which $7 million related to net assets held for sale. In addition, as previously reported, the Company entered into a credit facility on March 14, 2001, which is more fully described below. The Company's revolving credit and participation agreement (the "Master Credit Facility"), which matures on May 31, 2002 and is secured by substantially all of the Company's assets, provides the Company with a credit line of approximately $146 million, including a subfacility that may only be used to provide certain letters of credit that would potentially be required to be posted by the Company in the event that the Company's long-term debt rating were downgraded to below investment grade. As of June 30, letters of credit have been issued in the ordinary course for the Company's benefit using up most of the available line other than the subfacility. The Company does not expect to need other letters of credit to be issued under the main facility. The Master Credit Facility also provides for the coordinated administration of certain letters of credit issued in the normal course of business to secure performance under certain energy contracts (totaling $206 million), letters of credit issued to secure obligations relating to the Entertainment businesses (totaling $274 million) largely with respect to the Anaheim and Corel projects described above under "Capital Investments and Commitments," letters of credit issued in connection with the Company's insurance program (totaling $40 million) and letters of credit used for general corporate purposes (totaling $127 million). Of these letters of credit, approximately $190 million secure indebtedness included in the Company's balance sheet and $238 million relate to other obligations that are reflected in the notes to the financial statements. The balance relates principally to the Company's obligation under Energy contracts to pay damages should the Company commit a material performance default. The Company believes it is unlikely that such material defaults will occur. Under the Master Credit Facility, the Company may make continued investments in existing and, to a more limited extent, new energy projects when funds are available and no other restrictions apply. The Company's ability to make investments in new energy projects is subject to several covenants including those relating to the Company's cash position, net worth and compliance with leverage and interest coverage tests. The Company does not have any current plans to make newly identified investment commitments in 2001 in order to support the Company's cash position and liquidity. However, it does not expect any substantial impact on the Company's anticipated business results in the current year or in 2002 as a result of these decisions. The Company believes that it has sufficient sources of liquidity to fund its operations and its intended capital investments through funds from normal operations, continued asset sales and access to capital markets. The Company expects to complete the sale of its aviation fueling business within the next two months and its other remaining non-core businesses in the next twelve months. As previously disclosed, the Company executed a definitive agreement for sale of the aviation fueling business in July 2001. The successful completion of the sales processes for non-core assets and the actual amounts received may be impacted by general economic conditions in the markets in which these assets must be sold, and in some instances, necessary regulatory and third party consents. Recent events in the California energy markets affected the state's two largest utilities and resulted in delayed payment for energy delivered by the Company's facilities in late 2000 and early 2001. Pacific Gas & Electric Company (PG&E) and Southern California Edison Company ("SCE") both suspended payments under long term power purchase agreements in the beginning of 2001. On March 26, 2001 the California Public Utilities Commission ("CPUC") approved a substantial rate increase and directed the utilities to make payments to suppliers for current energy deliveries. SCE has made payments for energy delivered since March 26, 2001. On April 6, 2001, PG&E filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Since that time PG&E is also in compliance with the CPUC order and is making payments for current energy deliveries. In mid-June the CPUC issued an order declaring as reasonable and prudent any power purchase amendment at a certain fixed-price for a five-year term. On June 18, 2001 and July 31, 2001 the Company entered into several agreements and amendments to power purchase agreements with SCE which contained the CPUC approved pricing for a term of five years, to commence upon the occurrence of certain events. In addition, in June SCE paid 10% of the outstanding receivables and agreed to a timetable by which the remaining 90% would be paid, which outstanding amount will earn interest. In July, the Company also entered into agreements with similar terms with PG&E. These agreements also contain the CPUC approved price and term, both of which are effective immediately. Unlike SCE, PG&E made no cash payments but did agree that the amount owed to the Company will earn interest at a rate to be determined by the Bankruptcy Court. PG&E agreed to assume the Company's power purchase agreements and elevate the outstanding payable to priority administrative claim status. The amount of the claim and interest will be settled prior to the finalization of PG&E's plan of reorganization. The Bankruptcy court approved the agreements, the power purchase agreements and the assumption of the contracts on July 13, 2001. As of June 30, 2001, the Company's outstanding net receivables from these two utilities totaled approximately $58.2 million (including the Company's 50% interest in several partnerships) net of reserves of approximately $19.4 million. Of those net receivables, approximately $13.7 million was due from PG&E. Disagreements with both SCE and PG&E still exist regarding the valuation of the pre-March 26, 2001 receivables. Resolution of these disagreements and payment of the receivables is likely to be received only upon the resolution of California's energy crisis and PG&E's bankruptcy. Therefore, the amounts received and the timeliness of payment are subject to legal, regulatory, and legislative developments. Although this matter is not free of doubt, the Company believes it will ultimately receive payments in full of these receivables. Under the Master Credit Facility, the Company agreed to meet budgeted cash flows. The Company's ability to meet these tests could be adversely affected if payment of receivables for California power sales or completion of non-core asset sales are significantly delayed beyond the dates now contemplated. However, even if payments of these receivables or these asset sales are further delayed, the Company believes that it can meet these covenants by seeking access to capital markets, asset sales and through scheduling the incurrence of expenditures. Further, to date the Company has been able to work with its creditors for certain obligations relating to the financing of its California assets to assure compliance with related project finance obligations that might have been adversely impacted by payment delay, and it expects that it will continue to be able to do so unless the status of the California utilities substantially deteriorates or for other unforeseen reasons. The Company has commenced preliminary discussions with its banks to replace and/or extend the Master Credit Facility, which currently expires May 31, 2002. In conjunction with these efforts, the Company has begun to take steps to reduce the amount of letters of credit outstanding. Once a new facility is obtained, such facility will have to provide for such letters of credit that remain outstanding as of the termination date of the current Master Credit Facility. The Company has filed a universal shelf registration statement on July 17, 2001 in the amount of $350 million. Once the registration statement is effective, the Company expects to have additional flexibility to effectuate a transaction, or transactions, in the public capital markets, that could provide for the refinancing or extinguishment of existing obligations that mature over the next several years, as well as to provide additional liquidity for both working capital purposes and for investments in electric power generation growth projects. ANY STATEMENTS IN THIS COMMUNICATION WHICH MAY BE CONSIDERED TO BE "FORWARD-LOOKING STATEMENTS," AS THAT TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, ARE SUBJECT TO CERTAIN RISK AND UNCERTAINTIES. THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SUGGESTED BY ANY SUCH STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED OR IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND MORE GENERALLY, GENERAL ECONOMIC CONDITIONS, INCLUDING CHANGES IN INTEREST RATES AND THE PERFORMANCE OF THE FINANCIAL MARKETS; CHANGES IN DOMESTIC AND FOREIGN LAWS, REGULATIONS, AND TAXES, CHANGES IN COMPETITION AND PRICING ENVIRONMENTS; AND REGIONAL OR GENERAL CHANGES IN ASSET VALUATIONS. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has various legal proceedings involving matters arising in the ordinary course of business. The Company does not believe that there are any pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or to which any of its property is subject, the outcome of which would have a material adverse effect on the Company's consolidated position or results of operation. The Company's operations are subject to various federal, state and local environmental laws and regulations, including the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and the Resource Conservation and Recovery Act (RCRA). Although the Company's operations are occasionally subject to proceedings and orders pertaining to emissions into the environment and other environmental violations, the Company believes that it is in substantial compliance with existing environmental laws and regulations. In connection with certain previously divested operations, the Company may be identified, along with other entities, as being among potentially responsible parties responsible for contribution for costs associated with the correction and remediation of environmental conditions at various hazardous waste disposal sites subject to CERCLA. In certain instances the Company may be exposed to joint and several liability for remedial action or damages. The Company's ultimate liability in connection with such environmental claims will depend on many factors, including its volumetric share of waste, the total cost of remediation, the financial viability of other companies that also sent waste to a given site and its contractual arrangement with the purchaser of such operations. In addition, with respect to its aviation fueling business (which the Company has not yet divested), the Company and/or certain subsidiaries have been advised by various authorities that they are responsible for investigation, remediation and/or corrective action at various airports. Although the Company and/or its subsidiaries do not acknowledge any legal obligation to do so, the Company and/or its subsidiaries are cooperating with the government agencies in each such matter to seek fair and reasonable solutions. The potential costs related to all of the foregoing matters and the possible impact on future operations are uncertain due in part to the complexity of government 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 the Company's responsibility. Although the ultimate outcome and expense of any litigation, including environmental remediation, is uncertain, the Company believes that the following proceedings will not have a material adverse effect on the Company's consolidated financial position or results of operations. (a) Environmental Matters (i) On June 8, 2001, we received from the United States Environmental Protection Agency (EPA) a "General Notice Letter" pursuant to CERCLA, naming Ogden Martin Systems of Haverhill, Inc. as one of 2000 named PRPs with respect to the Beede Waste Oil Superfund Site, Plaistow, New Hampshire. EPA alleges that the Haverhill facility disposed approximately 45,000 gallons of waste oil at the Site, a former recycling facility. The total volume of waste allegedly disposed by all PRPs at the Site is estimated by EPA as approximately 14,519,232 gallons. EPA's letter states that, to date, the costs of response actions completed or underway at the Site total approximately $14,900,000, exclusive of interest. EPA has invited all named PRPs to participate in settlement discussions with respect to their alleged liability at the Site. As a result of uncertainties regarding the source and scope of contamination, the large number of PRPs and the varying degrees of responsibility among various classes of potentially responsible parties, our share of liability, if any, cannot be determined at this time. (ii) On April 9, 2001, Ogden Ground Services, Inc. and "Ogden Aviation", together with approximately 250 other parties, were named by the County Attorney of Metropolitan Dade County, Florida as PRPs, pursuant to CERCLA, RCRA and state law, with respect to an environmental cleanup that is underway at Miami International Airport. A total of 17 PRPs, not including the Ogden entities, already have been sued by the County in this matter. The County Attorney alleges that, as a result of releases of hazardous substances, petroleum, and other wastes to soil, surface water, and groundwater at the Airport, the County has expended over $200,000,000 in response and investigation costs and expects to spend an additional $250,000,000 to complete necessary response actions. The County has invited all named PRPs who are not parties to the litigation to participate in settlement discussions with respect to their alleged liability at the Site. As a result of uncertainties regarding the source and scope of contamination, the large number of PRPs and the varying degrees of responsibility among various classes of potentially responsible parties, our share of liability, if any, cannot be determined at this time. (iii) On December 26, 2000, I. Schumann & Co. named us, Ogden Alloys, Inc., Ogden Metals, Inc. and American Motorists Insurance Company in a lawsuit filed in the United States District Court for the Northern District of Ohio. The lawsuit seeks reimbursement for response costs at a site formerly owned and operated by our subsidiary related entities, damages for breach of contract and judgment declaring that we and our named subsidiaries are responsible for certain future remediation costs. The plaintiff is seeking response costs in excess of $3,000,000 and unspecified damages from us. The Company believes it has valid defenses and has moved to dismiss the complaint. (iv) On May 25, 2000 the California Regional Water Quality Control Board, Central Valley Region (the "Board"), issued a cleanup and abatement order to Pacific-Ultrapower Chinese Station ("Chinese Station"), a general partnership in which one of our subsidiaries owns 50% and which operates a wood-burning power plant located in Jamestown, California. This order arises from the use as fill material, by Chinese Station's neighboring property owner, of boiler bottom ash generated by Chinese Station. The order was issued jointly to Chinese Station and to the neighboring property owner as co-respondents. As required by the order, Chinese Station prepared an environmental site assessment and a clean closure work plan for the removal of the material, procured required permits, and conducted removal activities. The Board, by letter dated June 14, 2001, has alleged that as a result of time delays in completing the cleanup, respondents have a potential civil liability, as of that date, of $975,000. This matter remains under investigation by the Board and other state agencies with respect to alleged civil and criminal violations associated with the management of the material. Chinese Station believes it has valid defenses, and has filed a petition for review of the order. (v) On January 4, 2000 and January 21, 2000, United Air Lines, Inc. ("United") and American Airlines, Inc. ("American"), respectively, named Ogden New York Services, Inc. ("Ogden New York"), in two separate lawsuits filed in the Supreme Court of the State of New York. The lawsuits seek judgment declaring that Ogden New York is responsible for petroleum contamination at airport terminals formerly or currently leased by United and American at New York's Kennedy International Airport. These cases have been consolidated for joint trial. Both United and American allege that Ogden New York negligently caused discharges of petroleum at the airport and that Ogden New York is obligated to indemnify the airlines pursuant to the Fuel Services Agreements between Ogden New York and the respective airline. United and American further allege that Ogden New York is liable under New York's Navigation Law, which imposes liability on persons responsible for discharges of petroleum, and under common law theories of indemnity and contribution. The United complaint is asserted against Ogden New York, American, Delta Air Lines, Inc., Northwest Airlines Corporation and American Eagle Airlines, Inc. United is seeking $1,540,000 in technical contractor costs and $432,000 in legal expenses related to the investigation and remediation of contamination at the airport, as well as a declaration that Ogden New York and the airline defendants are responsible for all or a portion of future costs that United may incur. The American complaint, which is asserted against both Ogden New York and United, sets forth essentially the same legal basis for liability as the United complaint. American is seeking reimbursement of all or a portion of $4,600,000 allegedly expended in cleanup costs and legal fees it expects to incur to complete an investigation and cleanup that it is conducting under an administrative order with the New York State Department of Environmental Conservation. The estimate of those sums alleged in the complaint is $70,000,000. We dispute the allegations and believe that the damages sought are overstated in view of the Airlines' responsibility for the alleged contamination and that we have other defenses under our respective leases and permits with the Port Authority of New York and New Jersey. (vi) On December 23, 1999 Allied Services, Inc. ("Allied") was named as a third-party defendant in an action filed in the Superior Court of the State of New Jersey. The third-party complaint alleges that Allied generated hazardous substances at a reclamation facility known as the Swope Oil and Chemical Company Site, and that contamination migrated from the Swope Oil Site. Third-party plaintiffs seek contribution and indemnification from Allied and over 90 other third-party defendants for costs incurred and to be incurred for cleanup. This action was stayed, pending the outcome of first- and second-party claims. As a result of uncertainties regarding the source and scope of contamination, the large number of potentially responsible parties and the varying degrees of responsibility among various classes of potentially responsible parties, our share of liability, if any, cannot be determined at this time. (vii) On January 12, 1998, the Province of Newfoundland filed an Information against Airconsol Aviation Services Limited ("Airconsol") alleging that Airconsol violated provincial environmental laws in connection with a fuel spill on or about January 14, 1997 at Airconsol's fuel facility at the Deer Lake, Canada Airport. Airconsol contested the allegations and prevailed. The Court voided the Information. The Crown has appealed the Court's decision. We will continue to contest its alleged liability on appeal. ITEM 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of Covanta Energy Corporation was held on May 23, 2001 (b) Name of Each other Director whose Name of Each Director Elected Term of Office Continued ----------------------------- ------------------------ Anthony J. Bolland George L. Farr Scott G. Mackin Jeffrey F. Friedman Craig G. Matthews Helmut F.O. Volcker Robert E. Smith Norman G. Einspruch Homer A. Neal Joseph A. Tato Robert R. Womack (c) (i) Proposal 1: Election four directors for a three year term. Name Votes For Votes Withheld ---- --------- -------------- Anthony J. Bolland 40,734,453 2,631,622 Scott G. Mackin 40,468,575 2,897,500 Craig G. Matthews 40,708,184 2,657,891 Robert E. Smith 40,457,900 2,908,175 (ii) Proposal 2: Ratification of the selection of Deloitte & Touche LLP as independent public accountants of the corporation and its subsidiaries for the year 2001: For Against Abstain --- ------- ------- 43,133,641 178,415 54,019 (iii) Proposal 3: Proposal submitted by a shareholder copying the Board to obtain prior shareholder approval for all future agreements that provide compensation for senior executive if there is a change-in-control of the Company: For Against Abstain --- ------- ------- 11,054,541 21,596,854 2,352,740 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.0 Articles of Incorporation and By-laws. 3.1 (a) The Company's Restated Certificate of Incorporation as amended.* (b) Certificate of Ownership and Merger, merging Ogden-Covanta, Inc. into Ogden Corporation, dated March 7, 2001.* 3.2 The Company's By-Laws, as amended through April 8, 1998.* 4.0 Instruments Defining Rights of Security Holders. 4.1 Fiscal Agency Agreement between the Company and Bankers Trust Company, dated as of June 1, 1987, and Offering Memorandum dated June 12, 1987, relating to U.S. $85 million 6% Convertible Subordinated Debentures Due 2002.* 4.2 Fiscal Agency Agreement between the Company and Bankers Trust Company, dated as of October 15, 1987, and Offering Memorandum, dated October 15, 1987, relating to U.S. $75 million 5-3/4% Convertible Subordinated Debentures Due 2002.* 4.3 Indenture dated as of March 1, 1992 from the Company to Wells Fargo Bank Minnesota, National Association, as Trustee (as successor in such capacity to The Bank of New York, Trustee), relating to U.S. $100 million principal amount of 9 1/4% Debentures Due 2022.* 4.4 Amended and Restated Rights Agreement between the Company and The Bank of New York, dated as of September 28, 2000.* 10.0 Material Contracts 10.1 Employment Agreements (a) Employment Agreement between the Company and Edward W. Moneypenny dated as of January 22, 2001 (filed herewith as Exhibit 10.1(a)). 11 Detail of Computation of Earnings per Share Applicable to Common Stock (filed herewith as Exhibit 11) * INCORPORATED BY REFERENCE AS SET FORTH IN THE EXHIBIT INDEX OF THIS QUARTERLY REPORT ON FORM 10-Q. (b) Reports on Form 8-K Form 8-K Current Reports filed on May 16, 2001, May 17, 2001, June 14, 2001, and July 17, 2001 are incorporated herein by reference. SIGNATURES ---------- Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COVANTA ENERGY CORPORATION (Registrant) Date: August 14, 2001 By: /s/ EDWARD W. MONEYPENNY ---------------------------------- Edward W. Moneypenny Executive Vice President and Chief Financial Officer Date: August 14, 2001 By: /s/ WILLIAM J. METZGER --------------------------------- William J. Metzger Vice President and Chief Accounting Officer EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION OF DOCUMENT FILING INFORMATION - ----------- ----------------------- ------------------ 3 Articles of Incorporation and By-Laws. 3.1 (a) The Company's Restated Certificate of Filed as Exhibit (3)(a) to the Company's Form 10-K for Incorporation as amended. the fiscal year ended December 31, 1988 and incorporated herein by reference. (b) Certificate of Ownership and Merger, Merging Filed as Exhibit 3.1(b) to the Company's Form 10-K for Ogden-Covanta, Inc., into Ogden Corporation, dated the fiscal year ended December 31, 2000 and March 7, 2001. incorporated herein by reference. 3.2 The Company's By-Laws as amended. Filed as Exhibit 3.2 to the Company's Form 10-Q for the quarterly period ended March 31, 1998 and incorporated herein by reference. 4 Instruments Defining Rights of Security Holders. 4.1 Fiscal Agency Agreement between the Company and Filed as Exhibits (C)(3) and (C)(4) to the Company's Bankers Trust Company, dated as of June 1, 1987 and Form 8-K filed with the Securities and Exchange Offering Memorandum dated June 12, 1987, relating Commission on July 7, 1987 and incorporated herein by to U.S. $85 million 6% Convertible Subordinated reference. Debentures Due 2002. 4.2 Fiscal Agency Agreement between the Company and Filed as Exhibit (4) to the Company's Form S-3 Bankers Trust Company, dated as of October 15, Registration Statement filed with the Securities and 1987, and Offering Memorandum, dated October 15, Exchange Commission on December 4, 1987, Registration 1987, relating to U.S. $75 million 5-3/4% No. 33-18875, and incorporated herein by reference. Convertible Subordinated Debentures Due 2002. 4.3 Indenture dated as of March 1, 1992 from the Filed as Exhibit (4)(C) to the Company's Form 10-K for Company to Wells Fargo Bank Minnesota, National the fiscal year ended December 31, 1991 and Association, as Trustee (as successor in such incorporated herein by reference. capacity to The Bank of New York, Trustee), relating to U.S. $100 million 9-1/4% Debentures Due 2022. 4.4 Amended and Restated Rights Agreement between the Filed as Exhibit 1 to Amendment No. 1 to the Company's Company and The Bank of New York, dated as of Form 8-A filed with the Securities and Exchange September 28, 2000. Commission on September 29, 2000 and incorporated herein by reference. 10 Material Contracts. 10.1 Employment Agreements. (a) Employment Agreement between the Company Filed herewith as Exhibit 10.1(a). and Edward W. Moneypenny dated as of January 22, 2001. 11 Detail of Computation of Earnings Per Share Filed herewith as Exhibit 11. Applicable to Common Stock.
EX-10.1(A) 3 covex10a-814.txt EXHIBIT 10.1(a) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of the 22 day of January 2001, by and between Ogden Corporation, a Delaware corporation (the "Company"), and Edward W. Moneypenny ("Executive"). W I T N E S S E T H: WHEREAS, it is the desire of the Company to agree in writing to the terms and conditions stated herein concerning certain types of terminations of Executive's employment with the Company; and WHEREAS, the Executive desires to accept and agree to such terms and conditions. NOW, THEREFORE, in consideration of the promises and the mutual agreements and covenants herein contained and for other good and valuable consideration, the Company and Executive hereby agree as follows: 1. Certain Definitions. (a) "Accrued Obligations" shall mean (x) a lump sum cash payment equal to the sum of (A) all Base Salary accrued but unpaid as of the Date of Termination and (B) all unreimbursed business expenses incurred by Executive prior to the Date of Termination in connection with the performance of his duties for the Company that are subject to reimbursement in accordance with the Company's expense reimbursement policies and (y) all benefits and entitlements accrued by Executive pursuant to the employee benefit plans and programs in which Executive was a participant during his employment with the Company. (b) "Affiliate" shall mean, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including but not limited to Subsidiary of the first Person, a Person of which the first Person is a Subsidiary, or another Subsidiary of a Person of which the first Person is also a Subsidiary. (c) "Cause" shall mean Executive is (A) engaging in fraud or dishonesty in connection with the performance of his duties for the Company, (B) engaging in any other willful and serious misconduct that is materially injurious to the business or reputation of the Company, (C) convicted of, or pleads guilty or nolo contendere to, any felony (or crime of the fourth degree in New Jersey) or to any other crime of moral turpitude, (D) intentionally breaching of any material provision of this Agreement or any other written agreement with the Company, or (E) failing to substantially perform his duties. (d) "Change in Control" shall mean: (i) any person (as such term is defined in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, other than beneficial ownership by the Company, any Subsidiary of the Company, any employee benefit plan of the Company or a Subsidiary thereof or any person or entity organized, appointed or established, pursuant to the terms of any such benefit plan; (ii) the Company's stockholders approve: (i) a plan of complete liquidation of the Company; (ii) an agreement for the sale or disposition of all or substantially all the Company's assets to one or more corporations where 50% or more of the corporation(s) purchasing the assets is not controlled by or under the common control with the Company; (iii) a merger, consolidation, or reorganization of the Company with or involving any other corporation, limited liability entity or similar person, other than a merger, consolidation or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization; or (iv) a share exchange or other form of business combination having the same effect as the merger or consolidation described in (iii). (iii) during any two-year period, individuals who at the date on which the period commences constitute a majority of the Board of Directors of the Company cease to constitute a majority of thereof for any reason; provided, however, that a director who was not a director at the beginning of such period shall be deemed to have satisfied the two-year requirement if such director was elected by, or on the recommendation of, at least two-thirds of the directors who were directors at the beginning of such period (either actually or by prior operation of this provision), other than any director who is so approved in connection with any actual or threatened contest for election to positions on the Board. (e) "Control" shall mean, with respect to any Person, the possession, directly or indirectly, severally or jointly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. (1) "Disability" shall mean that the Executive is physically or mentally incapacitated so as to render Executive incapable of performing Employee's usual and customary duties. Employee's receipt of Social Security Disability Benefits shall be deemed conclusive evidence of Disability for purposes of this Agreement; provided, however, that in the absence of Executive's receipt of Social Security benefits, the Company may, in its reasonable discretion (but based upon appropriate medical evidence), determine that Employee is disabled. Executive shall make himself available, if requested by Company, for an examination by a healthcare professional for purposes of determining if Executive is disabled. (g) "Date of Termination" shall mean (w) if Executive's employment is terminated by his death, the date of his death, (x) if Executive's employment is terminated by the Company for Cause, the date on which a written notice of termination is given to Executive or, if later, any effective date of termination specified by the Company in such notice, (y) if Executive's employment is terminated by the Company Without Cause or by Executive for any reason, the date that is 30 days after the date on which notice of such termination is given to the Company or Executive, as the case may be, or, if no such notice is given, the date Executive ceases to provide services to the Company and (z) if Executive's employment is terminated as a result of his Disability, thirty (30) days after written notice to Executive of Employer's intention to terminate. (h) "Good Reason" shall mean a termination of Executive's employment with the Company by Executive within 90 days following (A) a reduction in the rate of Executive's base salary or the Target Annual Bonus unless the Executive is provided with equivalent or greater compensation in a different form, (B) the failure of the Company to pay the Executive a bonus for 2001 of at least 60% of his base salary for the year 2001 at the time the Company would have normally paid bonuses to its other executives for services provided in such year; (C) the breach of any material provision of this Agreement by the Company or (D) the failure of the Company to obtain an assumption (in form and substance reasonably satisfactory to the Executive, except in the case of a merger or consolidation which does not constitute a Change in Control for which no separate assumption is necessary) of the obligations of the Company under this Agreement by any Successor to the Company, provided that Executive shall have delivered written notice to the Company of his intention to terminate his employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to provide a basis for such termination, and the Company shall not have cured such circumstances within thirty (30) days of receipt of such notice. (i) "Ogden Common Stock" shall mean the common stock of Ogden Corporation., par value $.50 per share. (j) "Person" shall mean any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. (k) "Severance Period" shall mean the three year period immediately following Executive's Date of Termination. (l) "Subsidiary" shall mean, with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing 50% or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person. (m) "Successor" of a Person shall mean a Person that succeeds to the first Person's assets and liabilities by merger, liquidation, dissolution or otherwise by operation of law, or a Person to which all or substantially all the assets and/or business of the first Person are transferred. (n) "Target Annual Bonus" shall mean an annual bonus equal to 70% of Executive's base salary at the rate in effect on the last day of the calendar year for which such bonus is payable to Executive. (o) "Without Cause" shall mean any termination of Executive's employment by the Company that is not a termination for Cause, or resulting from Executive's disability or death. 2. Severance Benefits Upon Certain Terminations of Employment. The Company shall have the right to terminate the employment of Executive, with Cause or Without Cause, at any time, and Executive shall have the right to terminate his employment with the Company for or without Good Reason at any time, or because of a Change in Control, in each such case (except in the case of a termination by the Company for Cause), upon at least 30 days prior written notice to the other, subject to paragraphs (a) and (b) of this Section 2. (a) If (i) Executive's employment shall be terminated by the Company Without Cause, (ii) Executive terminates his employment for Good Reason, or (iii) Executive terminates his employment within six months of a Change in Control and there shall have been (A) a material change in Executive's duties, (B) a reduction in his base salary or the percentage of his Target Annual Bonus or (C) his principal office is moved 35 miles or more from the Company's present offices at 40 Lane Road, Fairfield, New Jersey, Executive shall be entitled to the following severance benefits, provided Executive executes and delivers to the Company a general release of all claims against the Company and its Affiliates in such form as the Company shall direct: (I) Except for a termination resulting from a Change in Control, (i) continued payment of installments of Executive's base salary, at the rate in effect immediately prior to the Date of Termination, for the Severance Period, such installments to be paid in accordance with the Company's regular payroll practices; and (ii) payment of the Target Annual Bonuses applicable to Executive for the Severance Period but for such termination, provided that (A) the Company shall pay to Executive a pro rated Target Annual Bonus for any portion of the Severance Period that ends prior to the expiration of a full calendar year and (B) such Target Annual Bonuses shall be paid to Executive at the same time as annual bonuses for the relevant calendar year are paid to the Company's other employees pursuant to the Company's bonus plan at the Date of Termination; (II) If the termination is pursuant to Section 2(a)(iii), the Company shall pay Executive within 30 days of his termination in a lump sum his base salary and Target Annual bonus for a three year period. (III) All Accrued Obligations. (IV) Special Reimbursement. (A) Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment relating to a Change in Control (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would subject the Executive to the excise tax imposed under Section 4999 of the Code or any successor section thereto (the "Excise Tax"), the Company shall pay to the Executive an additional amount (the "Gross Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local tax and Excise Tax upon the payment provided for by this Section shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(2) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's general counsel and reasonably acceptable to the Executive such Total Payments (in 280G(b)(2)(A) of the Code or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross Up Payment is to be made and applicable state and local income taxes at the highest marginal rate of taxation, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (C) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross Up Payment), the Company shall make an additional Gross Up Payment in respect to such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is financially determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of any such subsequent liability for Excise Tax with respect to the Total Payments. Any amount payable to Executive in connection with his termination of employment pursuant to any severance or termination plan or program of the Company shall be reduced by the amount payable to Executive pursuant to this Agreement. (b) If Executive's employment with the Company shall terminate for any reason other than the reasons referred to in Section 2(a), including without limitation, by reason of Executive's resignation without Good Reason, Executive's termination by the Company for Cause or Executive's death or Disability (for a period of six continuous months and the Employer provides thirty (30) days written notice to the Executive of its intention to terminate), Executive shall be entitled only to the Accrued Obligations and shall not be entitled to any severance or similar compensation or benefits pursuant to this Agreement or otherwise, except for what may be provided for under a plan or program of the Company applicable to Executive. 3. Unauthorized Disclosure. Executive shall be subject to and bound by the confidentiality agreement attached hereto as Exhibit A. 4. Non-Solicitation. During the period of Executive's employment with the Company and during the three year period following any termination of Executive's employment with the Company, Executive shall not, directly or indirectly, on his own behalf or on behalf of any other corporation, firm or other entity, solicit for employment, employ or otherwise interfere with the relationship of the Company with any individual who is or was employed by or otherwise engaged to perform services for the Company at any time during which Executive was employed by the Company. 5. Restrictive Covenants. Competitive Activity. Executive covenants and agrees that at all times during his period of employment with the Company, and for a period of two (2) years after the Date of Termination of his employment by reason of (i) termination by the Company for Cause, or (ii) termination by the Executive for other than Good Reason or Change in Control, he will not, directly or indirectly, engage in, assist, or have any active interest or involvement whether as an employee, agent, consultant, creditor, advisor, officer, director, stockholder (excluding holding less than 1% of the stock of a public company), partner, proprietor or any type of principal whatsoever, in any person, firm, or business entity which is engaged in the same business as that conducted and principally carried on by the Company in the United States on the Date of Termination and continued thereafter, without the Company's specific written consent to do so. This covenant shall not prevent Executive from sitting on the board of an entity engaged in the same business as the Company, provided Executive is not otherwise employed or consulting with such entity or its Affiliates. 6. Enforcement of Covenants. (a) Right to Injunction. Executive acknowledges that a breach of the covenants set forth in Sections 3, 4 and 5 hereof will cause irreparable damage to the Company with respect to which the Company's remedy at law for damages will be inadequate. Therefore, in the event of breach or anticipatory breach of the covenants set forth in these sections by Executive, he and the Company agree that the Company shall be entitled to the following particular forms of relief, in addition to remedies otherwise available to it at law or equity: injunctions, both preliminary and permanent, enjoining or restraining such breach or anticipatory breach, and Executive hereby consents to the issuance thereof forthwith and without bond by any court of competent jurisdiction. (b) Separability of Covenants, The covenants contained in Sections 3. 4 and 5 hereof constitute a series of separate covenants, one for each applicable State in the United States and the District of Columbia, and one for each applicable foreign country. If in any judicial proceeding, a court shall hold that any of the covenants set forth in Section 5 exceed the time, geographic, or occupational limitations permitted by applicable laws, Executive and the Company agree that such provisions shall and hereby are reformed to the maximum time, geographic, or occupational limitations permitted by such laws. Further, in the event a court shall hold unenforceable any of the separate covenants deemed included herein, then such unenforceable covenant or covenants shall be deemed eliminated from the provisions of this Agreement for the purpose of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. Executive and the Company further agree that the covenants in Sections 3, 4 and 5 shall each be construed as a separate agreement independent of any other provisions of this Agreement, and the existence of any claim or cause of action by Executive against the Company whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of the covenants of Sections 3, 4 and 5. 7. Arbitration. Executive agrees that any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in accordance with the rules of the American Arbitration Association then in effect, except as modified herein. Notice of demand for arbitration shall be filed in writing with the other party and the American Arbitration Association. The arbitration decision shall be binding and conclusive, provided that the decision is consistent with the laws of the State of New Jersey and provided that the factual decision(s) is not against the weight of the evidence. The arbitrators shall render their decision in writing and explain the basis thereof. Both parties shall have a right to appeal of the arbitrators' decision in accordance with the aforesaid standard. The award rendered by the arbitrators shall be final and judgment shall be entered upon it in accordance with the applicable law and as limited by the right of appeal described herein. The appeal would be to a trial court sitting in the State of New Jersey. However, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions concerning confidential information, non-solicitation or restrictive covenants set forth above and Executive hereby consents that such restraining order may be granted without the necessity of the Company's posting any bond. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The amount of fees and expense of the arbitrators which is to be borne by each party shall be determined by the arbitrators. 8. Notices. All notices and other communications required or desired to be given hereunder shall be in writing and shall be personally delivered, or sent by United States registered or certified mail with postage prepaid, or sent by Federal Express or other generally recognized overnight courier service with charges prepaid or billed to the shipper, and addressed. to the Company at: 40 Lane Road Fairfield, New Jersey 07007 Attention: General Counsel And to Executive at his most current address on the Company's records. Either party may hereafter designate to the other from time to time by similar notice a different address to which notice to it/he shall thereafter be sent. 9. Modification; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and by an authorized officer of the Company. Waiver by any party of any breach of or failure to comply with any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement. 10. Severability. If any term or provision of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original. 12. Certain Withholdings. The Company shall withhold from any amounts payable to Executive hereunder all federal, state, city and other taxes required to be withheld pursuant to any applicable law or regulation. 13. Assignability. This Agreement is personal in nature to Executive. Executive shall have no right to assign or transfer this Agreement. In the event of any attempted assignment or transfer by Executive contrary to this section, all of Executive's rights hereunder shall be forfeited and the Company shall have no further liability under this Agreement. This Agreement shall be binding on and inure to the benefit of the Company and its Successors and permitted assigns. This Agreement shall not be assignable by the Company without the prior written consent of Executive, except that the Company may assign this Agreement to any of its Affiliates or to any Successor to the Company without prior written approval of Executive upon the transfer of all or substantially all of the Company's business and/or assets (by whatever means) to such Affiliate or Successor. 14. Entire Agreement. This Agreement, together with Exhibit A hereto, constitutes the entire agreement and understanding between the Company and Executive with respect to, the subject matter hereof, superseding any and all representations and prior written or oral agreements and understandings which may have existed. 15. Amendment. This Agreement may not be amended or modified, in whole or in part, except by a written instrument signed by the party to be bound thereby. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 17. Construction. All the provisions of this Agreement shall be construed as covenants and agreements in the same manner as though the words expressing such covenants and agreements were contained in each separate section or paragraph hereof. As herein used, the singular number shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders, unless the context would fairly not admit such construction. The captions of the sections and paragraphs hereof are for convenience of reference only and shall not be construed or used in any way to define, limit or otherwise affect the meaning or construction of any provision of this Agreement. All references herein to "Section" or "paragraph" shall mean the approximately numbered or lettered Section or paragraph of this Agreement unless the reference is to another specified document, text or instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. OGDEN CORPORATION /s/ Scott Mackin /s/ Edward W Moneypenny Executive ATTESTED OR WITNESSED BY /s/ Catherine Petrecca EX-11 4 covex11-814.txt EXHIBIT 11 COVANTA ENERGY CORPORATION AND SUBSIDIARIES DETAILS OF COMPUTATION OF EARNINGS PER SHARE APPLICABLE TO COMMON STOCK FOR THE THREE MONTHS ENDED JUNE 30, ------------------------------------------------------------------------------ 2001 2000 ------------------------------------------------------------------------------ Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ (In Thousands, Except Per Share Amounts) Income (loss) from continuing operations $ 14,458 $(10,414) Less: preferred stock dividend 16 17 -------- -------- Basic Earnings (Loss) Per Share 14,442 49,665 $ 0.29 (10,431) 49,534 $(0.21) ----- ----- Effect of Dilutive Securities: Stock options 300 (A) Restricted stock 121 (A) Convertible preferred stock 16 211 (A) 6% convertible debentures (A) (A) 5 3/4% convertible debentures (A) (A) ---------------------- ---------------------- Diluted Earnings (Loss) Per Share $ 14,458 50,297 $ 0.29 $(10,431) 49,534 $ (0.21) --------------------------------- --------------------------------- (A) Antidulitive
Note: Basic earnings per common share was computed by dividing net income (loss), reduced by preferred stock dividend requirements, by the weighted average of the number of shares of common stock outstanding during each period. Diluted earnings per common share was computed on the assumption that all convertible debentures, convertible preferred stock, restricted stock and stock options converted or exercised during each period or outstanding at the end of each period were converted at the beginning of each period or the date of issuance or grant, if dilutive. This computation provides for the elimination of related convertible debenture interest and preferred dividends. EXHIBIT 11 COVANTA ENERGY CORPORATION AND SUBSIDIARIES DETAILS OF COMPUTATION OF EARNINGS PER SHARE APPLICABLE TO COMMON STOCK FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------------------ 2001 2000 ------------------------------------------------------------------------------ Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ (In Thousands, Except Per Share Amounts) Income (loss) from continuing operations $ 23,873 $(14,588) Less: preferred stock dividend 33 34 -------- -------- Basic Earnings (Loss) Per Share 23,840 49,637 $ 0.48 (14,622) 49,515 $(0.30) ----- ----- Effect of Dilutive Securities: Stock options 254 (A) Restricted stock 105 (A) Convertible preferred stock 33 212 (A) 6% convertible debentures (A) (A) 5 3/4% convertible debentures (A) (A) ---------------------- ---------------------- Diluted Earnings (Loss) Per Share $ 23,873 50,208 $ 0.48 $(14,622) 49,515 $ (0.30) --------------------------------- --------------------------------- (A) Antidulitive
Note: Basic earnings per common share was computed by dividing net income (loss), reduced by preferred stock dividend requirements, by the weighted average of the number of shares of common stock outstanding during each period. Diluted earnings per common share was computed on the assumption that all convertible debentures, convertible preferred stock, restricted stock and stock options converted or exercised during each period or outstanding at the end of each period were converted at the beginning of each period or the date of issuance or grant, if dilutive. This computation provides for the elimination of related convertible debenture interest and preferred dividends. -----END PRIVACY-ENHANCED MESSAGE-----