11-K 1 covanta11k-psp_0625.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 /x/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2002. OR / / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to __________. Commission file number 1-3122 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Covanta Energy Americas, Inc. The Power Savings Plan B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 COVANTA ENERGY AMERICAS, INC. THE POWER SAVINGS PLAN Independent Auditors' Report Financial Statements As of December 31, 2002 and 2001 and for the Year Ended December 31, 2002 COVANTA ENERGY AMERICAS, INC. THE POWER SAVINGS PLAN TABLE OF CONTENTS ------------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of Net Assets Available for Benefits as of December 31, 2002 and 2001 2 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2002 3 Notes to Financial Statements 4-8 INDEPENDENT AUDITORS' REPORT Covanta Energy Americas, Inc. The Power Savings Plan We have audited the accompanying statements of net assets available for benefits of Covanta Energy Americas, Inc. The Power Savings Plan (the "Plan") as of December 31, 2002 and 2001, and the related statement of changes in net assets available for benefits for the year ended December 31, 2002. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2002 and 2001, and the changes in net assets available for benefits for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey June 27, 2003 COVANTA ENERGY AMERICAS, INC. THE POWER SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 2002 AND 2001 -------------------------------------------------------------------------------- 2002 2001 ASSETS - Investments (Note 3) $ - $ 10,123,077 ------------ ------------ Receivables: Participant contributions - 38,693 Employer contributions - 8,528 ------------ ------------- Total receivables - 47,221 ------------ ------------- NET ASSETS AVAILABLE FOR BENEFITS $ - $ 10,170,298 ============ ============= See notes to financial statements. COVANTA ENERGY AMERICAS, INC. THE POWER SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEAR ENDED DECEMBER 31, 2002 ----------------------------------------------------------------------------- ADDITIONS: Additions to net assets attributed to- Interest and dividends $ 206,018 Contributions: Participants 40,015 Employer 341,442 ------------- Total additions 587,475 ------------- DEDUCTIONS: Deductions from net assets attributed to: Net depreciation in fair value of investments (Note 3) (1,932,096) Benefits paid to participants (199,444) Administrative expenses (12,968) Net transfer to other plans (Note 6) (8,613,265) ------------- Total deductions (10,757,773) ------------- NET DECREASE IN NET ASSETS AVAILABLE FOR BENEFITS (10,170,298) NET ASSETS AVAILABLE FOR BENEFITS: BEGINNING OF YEAR 10,170,298 ------------- END OF YEAR $ - ============= See notes to financial statements. Covanta Energy Americas, Inc. THE POWER SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002 AND 2001 -------------------------------------------------------------------------------- 1. DESCRIPTION OF THE PLAN The following description of the Covanta Energy Americas, Inc. The Power Savings Plan (the "Plan") provides only general information. Participants should refer to the Plan document for more complete information of the Plan's provisions. General Information - The Plan is a defined contribution plan covering substantially all employees of Covanta Energy Americas. Inc. ("CEA" or "Plan Sponsor") and its subsidiaries (collectively "the Company"). The plan was amended, effective January 1, 2002, to exclude from participation any employee who is eligible to participate in the newly adopted Covanta Energy Savings Plan (the "Savings Plan"). At that time, all active non-union participants became participants of the Savings Plan and all active union participants became participants in the Resource Recovery Security Fund Plan. In addition, no participant who is eligible to participate in the Savings Plan is permitted to make an employee contribution or rollover contribution to the Plan and no employer contribution can be made with respect to participants who are eligible to participate in the Savings Plan. As discussed in Note 6, on December 31, 2002, the Plan merged into the Savings Plan and Resource Recovery Security Fund. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On April 1, 2002, Covanta Energy Corporation ("Covanta") and 123 of its domestic subsidiaries, which include the Company, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Since April 1, 2002, thirty-one additional subsidiaries of Covanta filed for reorganization under Chapter 11 of the Bankruptcy Code. In addition, four subsidiaries, which had filed petitions on April 1, 2002, have been sold as part of the bankruptcy proceeding. It is possible that additional subsidiaries will file petitions for reorganization under Chapter 11 and be included as part of Covanta's plan of reorganization. Covanta and these subsidiaries, (collectively the "Debtors"), are currently operating their businesses as debtors in possession pursuant to the Bankruptcy Code. The Debtors dependence upon, among other things, confirmation of a plan of reorganization, their ability to comply with, and if necessary renew the terms of the Debtor in Possession Credit Facility, and their ability to generate sufficient cash flows from operations, asset sales and financing arrangements to meet their obligations, raise substantial doubt about their ability to continue as going concerns. The Debtors' Debtor in Possession Credit Facility includes provisions enabling Covanta and its subsidiaries, including the Company, to obtain funding for making employer matching contributions to the Plan. As a result of publicly disclosed information concerning Covanta and uncertainty of future rules and regulations which may apply to the Plan's investment in Covanta's common stock, the Investment Committee determined that it was in the best interest of the Plan and its participants to discontinue the Covanta Stock Fund as an investment option under the Plan effective March 18, 2002. Additionally, the Plan was amended to allow Plan participants to maintain their investment in the Covanta Stock Fund or, at their discretion, redirect their investment to another investment fund offered under the Plan. On May 16, 2002, the Securities and Exchange Commission granted the application of the New York Stock Exchange, Inc. (the "NYSE") for removal of Covanta's common stock from listing and registration on the NYSE. The removal of such stock became effective at the opening of the trading session on May 17, 2002. Administration of the Plan - Administrative and Investment Committees are appointed by the Board of Directors (the "Board") of the Company and serve as fiduciaries of the Plan. The Administrative Committee has responsibility for administering the Plan and interpretation of the Plan. The Company's Investment Committee has responsibility for reviewing the performance of the Plan's investments. Costs related to the administration of the Plan may be paid out of Plan assets if the Company does not pay such expenses directly. Eligibility - Generally all employees of the Company who have attained age twenty-one and have completed six months of credited service were eligible to participate in the Plan. Eligible employees may enroll in the Plan only at the beginning of the Plan year and the first day of each month thereafter. Participant Contributions - A participant may contribute up to 15% of his or her eligible compensation to the Plan on a pretax basis. For 2002 and 2001 participant pre-tax contributions could not each exceed $11,000 and $10,500, respectively, in accordance with Internal Revenue Service ("IRS") Regulations. Employer Contributions - The Company matches 50% of a participant's pretax contributions with a maximum match up to 6% of eligible compensation. Matching contributions are made on a biweekly basis. The Company may also make an annual discretionary profit-sharing contribution. The matching and profit sharing contributions follow the participants directed contributions into the various investment options offered by the Plan. Participant Rollover - Participants may make rollover contributions from other qualified employee benefit plans specified by the Internal Revenue Code (the "Code"). Vesting - Participants are immediately vested in their elective contributions and earnings thereon. Participants hired on or after January 1, 2000 become vested in their employer discretionary contributions (including matching contributions) at a rate of 20% per year beginning with one year of service as defined in the Plan, with 100% vesting after five years of service. Participants hired before January 1, 2000 are 100% vested in their employer contributions (including matching contributions). Payment of Benefits - Upon termination of service resulting from retirement, permanent disability, death, or termination of employment, a participant may elect to receive either a lump-sum amount equal to the vested value of his or her account, or annual installments over a period not exceeding five years. Forfeitures - Forfeiture amounts were used to reduce employer contributions to the Plan. At December 31, 2002 and 2001, forfeitures of nonvested accounts totaled zero and $2,392, respectively. Hardship Withdrawals - In certain hardship situations, as defined by the Plan, a participant can withdraw all or part of his or her vested pretax contributions account while still actively employed. Employer matching and discretionary contributions are not eligible for hardship withdrawals. In-Service Withdrawals - A participant who has attained the age of 59 1/2 is permitted to withdraw upon request all or any portion of the vested account balance. Participant Loans - Participant loans are recorded at the face amount of the loans made to plan participants. Loans to participants, which comprise the Loan Fund, are reported at cost, which approximates fair value. Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 reduced by the excess (if any) of the highest outstanding loan balance from the Plan to Participant for the past twelve months, over, the outstanding balance of loans from the Plan to participant on the date such loan is made or 50% of their vested account balance. Loan transactions are treated as a transfer (from) to the investment fund (to) from the Participant Loan Fund. The loans have up to 5-year terms (10 years for the purchase of a principal residence) and are secured by the balance in the participant's account. The loans bear interest at one percent over the prime rate and are repaid ratably through payroll withholdings. Participant Accounts - Each participant's account is credited with the participant's contributions, the Company's matching contributions, and allocations of investment income and any Company discretionary contributions. Allocations of earnings are based on participant account balances. Allocations of discretionary contributions are based on eligible compensation. All contributions are allocated based on percentage elections made by each participant among the various mutual funds. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The accounting and reporting policies followed in the preparation of the financial statements of the Plan are in conformity with accounting principles generally accepted in the United States of America. Investment Valuation and Income Recognition - The Plan's investments are stated at fair value. Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year-end. Participant loans are valued at the outstanding principal balance due for loans taken from individual accounts, which approximates fair value. Purchase and sales of securities are recorded on a trade date basis. Dividends are recorded on the ex-dividend date. Amounts for securities that have no quoted market prices represent estimated fair value. The approximate value of the Covanta Stock Fund is the quoted market price of Covanta's common stock. The T. Rowe Price Stable Value Common Trust Fund ("Stable Value Fund") which invests in benefit-responsive investments contracts is valued at contract value (cost plus accrued interest), which approximates fair value. Administrative Expenses - Substantially all costs of administering the Plan are paid by the Company as stated in the Plan document. Certain mutual funds include direct investment management expenses that are paid by the Plan. Payment of Benefits - Benefits to participants are recorded when paid. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from the estimates and assumptions used. Risks and Uncertainties - The Plan provides for various investment options (Note 3). Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in value of investment securities will occur in the near term and that such changes would materially affect participants' account balances and the amounts reported in the statements of net assets available for benefits. 3. INVESTMENTS The following is a summary of the Plan's investments held by the Trustee at December 31,2001, that represented 5% or more of the Plan's net assets: Investments at fair value: Fidelity Magellan Fund $ 1,955,680 *T. Rowe Balanced Fund 687,837 *T. Rowe Price Blue Chip Growth Fund 2,477,119 *T. Rowe Price New Horizons Fund 604,595 *T. Rowe Price U.S. Treasury Money Fund 865,716 *T. Rowe Price Equity Income Fund 1,195,926 *T. Rowe Price Spectrum Income Fund 568,620 *Loan Fund 900,541 * Permitted party-in-interest During 2002, the Plan's investments (including gains and losses on investments bought and sold as well as held during the year) depreciated in value by $1,932,096 as follows: *T. Rowe Price Equity Income Fund $ (187,165) *T. Rowe Price International Stock Fund (5,000) *T. Rowe Price Balanced Fund (81,240) *T. Rowe Price Spectrum Income Fund 10,500 *T. Rowe Price Blue Chip Growth Fund (556,311) *T. Rowe Price Equity Index 500 Fund (35,588) *T. Rowe Price Small-Cap Value Fund (12,931) *T. Rowe Price New Horizons Fund (143,997) *T. Rowe Price Science & Technology Fund (81,262) *T. Rowe Price Mid-Cap Growth Fund (11,270) *Covanta Stock Fund (389,531) Fidelity Magellan Fund (438,301) ------------- $ (1,932,096) ============= *Permitted party-in-interest 4. INVESTMENT CONTRACTS The Stable Value Fund primarily invests in investment contracts providing a guaranteed return on principal invested over a specified time period. Investment contracts in the Stable Value Fund are fully benefit-responsive and are recorded at their fair values. Generally, fair value approximates contract value contributions made plus interest accrued at the contract rates less withdrawals and fees. If, however, an event has occurred that may impair the ability of the contract issuer to perform in accordance with the contract terms, fair value may be less than the contract value. The crediting interest rates at December 31, 2002 for the various investment contracts ranged from 3.34% to 7.83%. The average yield of the Stable Value Fund for the year ended December 31, 2002 was 5.16%. 5. FEDERAL INCOME TAX STATUS The Plan Sponsor adopted a nonstandardized prototype plan which received an IRS opinion letter dated August 24, 1993, and the IRS has determined and informed the Company by letter dated January 20, 1998 that the Plan, as adopted, and related trust are designed in accordance with applicable sections of the Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the plan is currently being operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan's financial statements. 6. PLAN AMENDMENT AND TERMINATION On November 21, 2002, the Administrative Committee approved the merger of the Plan into the Savings Plan for non-union participants and into the Resource Recovery Security Fund for union participants. On December 31, 2002, this Plan was merged into the Savings Plan and Resource Recovery Security Fund. All participants' account balances were transferred into these respective plans. The Plan ceased to exist in the absence of any assets. 7. PARTY-IN-INTEREST TRANSACTIONS The Covanta Stock Fund invested in Covanta common stock which was traded on the New York Stock Exchange (the "Exchange") for 2001 and the first quarter of 2002, and on the National Quotation Bureau's Pink Sheets for the last three quarters of 2002. The Plan invests in certain mutual funds managed by the Trustee. Certain officers and employees of the Company (who may also be participants in the Plan) perform administrative services related to the operation, record keeping and financial reporting of the Plan. The Company pays these individuals salaries and also pays other administrative expenses on behalf of the Plan. Certain fees, including fees for the investment management services, to the extent not paid by the Company, are paid by the Plan. These transactions are not deemed prohibited party-in-interest transactions, because they are covered by statutory administrative exemptions from the Code's and ERISA's rules on prohibited transactions. ****** SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the Covanta Energy Americas, Inc. The Power Savings Plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Covanta Energy Americas, Inc. The Power Savings Plan Date: June 27, 2003 By: /s/ Stephen M. Gansler ----------------------------------- ----------------------------- Stephen M. Gansler Plan Administrator EXHIBIT INDEX Exhibit Number Description of Exhibit -------------- ---------------------- 23.1 Consent of Independent Auditors 99.0 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002