##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
    Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file
    number: 1-06732
 COVANTA HOLDING
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware

95-6021257(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employee
    Identification No.)40 Lane Road, Fairfield, N.J.

07004(Address of Principal Executive
    Offices)

(Zip
    Code)   Registrants telephone number, including area code:
 (973) 882-9000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.10 par value per share

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act: N/A
  þ o
  o þ
  þ o
  Form 10-K. þ
    Large accelerated
    filer þ

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting
    Company o(Do not check if a smaller
    reporting company)   o þ
      Class

February 12, 2009Common Stock, $0.10 par value per share

154,280,908 shares   Documents
    Incorporated By Reference:
  Part of Form 10-K of Covanta Holding Corporation

Documents Incorporated by ReferencePart III

Portions of the Proxy Statement to be filed with the Securities
    and Exchange Commission in connection with the Annual Meeting of
    Stockholders.




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##### 





TABLE OF
    CONTENTS
   
 PageCautionary Note Regarding Forward-Looking
    Statements


3Availability Of Information


3PART IItem 1.


Business


4About Covanta Holding Corporation


4Our Business Strategy


4Business Segments


5Domestic Business


6International Business


11Markets, Competition And Business Conditions


16Regulation Of Business


19Employees


24Executive Officers


25Item 1A.


Risk Factors


25Item 1B.


Unresolved Staff Comments


38Item 2.


Properties


38Item 3.


Legal Proceedings


38Item 4.


Submission Of Matters To A Vote Of Security
    Holders


38PART IIItem 5.


Market For Registrants Common Equity,
    Related Stockholder Matters, And Issuer Purchases Of Equity
    Securities


39Item 6.


Selected Financial Data


39Item 7.


Managements Discussion And Analysis Of
    Financial Condition And Results Of Operations


40Overview


40Results Of Operations


48Year Ended
    December 31, 2008 vs. Year Ended December 31, 2007


49Year Ended
    December 31, 2007 vs. Year Ended December 31, 2006


53Liquidity And Capital Resources


57Item 7A.


Quantitative And Qualitative Disclosures About
    Market Risk


69Item 8.


Financial Statements And Supplementary Data


73Item 9.


Changes In And Disagreements With Accountants On
    Accounting And Financial Disclosure


128Item 9A.


Controls And Procedures


128Item 9B.


Other Information


132PART IIIItem 10.


Directors, Executive Officers And Corporate
    Governance


132Item 11.


Executive Compensation


132Item 12.


Security Ownership Of Certain Beneficial Owners
    And Management And Related Stockholder Matters


132Item 13.


Certain Relationships And Related Transactions,
    And Director Independence


133Item 14.


Principal Accountant Fees And Services


133PART IVItem 15.


Exhibits And Financial Statement
    Schedules


133OTHERSignatures


139EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   2




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CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS  Form 10-K Form 10-K
  Form 10-K
 AVAILABILITY
    OF INFORMATION  www.sec.gov 1-800-SEC-0330 www.covantaholding.com
 3




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##### Table of Contents



PART I  Item 1.
    BUSINESS   About
    Covanta Holding Corporation    and/or
  Item 7. Managements Discussion and Analysis of
    Financial Condition and Results of Operations 
    Overview  Acquisitions and Business Development
 Our
    Business Strategy    
    providing customers with superior service and effectively
    managing our existing businesses;
    generating sufficient cash to meet our liquidity needs and
    invest in the business; and
    developing new projects and making acquisitions to grow our
    business in the Americas, Europe and Asia.      
    investing in research and development of new technologies to
    enhance existing operations and create new business
    opportunities in renewable energy and waste management; 4




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
    exploring and implementing processes and technologies at our
    facilities to improve energy efficiency and lessen environmental
    impacts; and
    partnering with governments and non-governmental organizations
    to pursue sustainable programs, reduce the use of
    environmentally harmful materials in commerce, and communicate
    the benefits of energy-from-waste.      and/or
    and/or
  Item 7.
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Overview 
    Acquisitions and Business Development
 Business
    Segments   5




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Item 7. Managements Discussion and Analysis of
    Financial Condition and Results of Operations 
    Overview  Business Segments
 DOMESTIC
    BUSINESS  Energy-From-Waste
    Projects
    and/or
    
    We design the facility, help to arrange for financing and then
    we either construct and equip the facility on a fixed price and
    schedule basis, or we undertake an alternative role, such as
    construction management, if that better meets the goals of our
    municipal client.
    For the domestic energy-from-waste projects we own, financing is
    generally accomplished through tax-exempt and taxable revenue
    bonds issued by or on behalf of the client community. For these
    facilities, the bond proceeds are loaned to us to pay for
    facility construction and to fund a debt service reserve for the
    project, which is generally sufficient to pay principal and
    interest for one year. Project-related debt is included as
    project debt and the debt service reserves are
    included as restricted funds held in trust in our
    consolidated financial statements. Generally, project debt is
    secured by the revenues pledged under the respective indentures
    and is collateralized by the facility and the contracts and
    other assets of our project subsidiary.
    Following construction and during operations, we receive revenue
    from two primary sources: fees we receive for operating projects
    or for processing waste received, and payments we receive for
    electricity
    and/or steam
    we sell.  
    We have 22 domestic energy-from-waste projects where we charge a
    fixed fee (which escalates over time pursuant to contractual
    indices that we believe are appropriate to reflect price
    inflation) for operation and maintenance services. We refer to
    these projects as having a Service Fee structure.
    Our contracts at Service Fee projects provide revenue that does
    not materially vary based on the amount of waste processed or
    energy generated and as such is relatively stable for the
    contract term. In addition, at most of our Service Fee projects,
    the operating subsidiary retains only a small fraction of the
    energy revenues generated, with the balance used to provide a
    credit to the municipal client against its disposal 6




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costs. Therefore, in these projects, the municipal client
    derives most of the benefit and risk of energy production and
    changing energy prices.    
    We also have 13 domestic energy-from-waste projects at which we
    receive a per-ton fee under contracts for processing waste. We
    refer to these projects as having a Tip Fee
    structure. At Tip Fee projects, we generally enter into
    long-term waste disposal contracts for a substantial portion of
    project disposal capacity and retain all of the energy revenue
    generated. These Tip Fee service agreements include stated fixed
    fees earned by us for processing waste up to certain base
    contractual amounts during specified periods. These Tip Fee
    service agreements also set forth the per-ton fees that are
    payable if we accept waste in excess of the base contractual
    amounts. The waste disposal and energy revenue from these
    projects is more dependent upon operating performance and, as
    such, is subject to greater revenue fluctuation to the extent
    performance levels fluctuate.
    We generally sell the energy output from our projects to local
    utilities pursuant to long-term contracts. Where a Service Fee
    structure exists, our client community usually retains most
    (generally 90%) of the energy revenues generated and pays the
    balance to us. Where Tip Fee structures exist, we generally
    retain 100% of the energy revenues. At several of our
    energy-from-waste projects, we sell energy output under
    short-term contracts or on a spot-basis into the regional
    electricity grid. At our Tip Fee projects, we generally have a
    greater exposure to energy market price fluctuation, as well as
    a greater exposure to variability in project operating
    performance.  
    Under both structures, our returns are expected to be stable if
    we do not incur material unexpected operation and maintenance
    costs or other expenses. In addition, most of our
    energy-from-waste project contracts are structured so that
    contract counterparties generally bear, or share in, the costs
    associated with events or circumstances not within our control,
    such as uninsured force majeure events and changes in legal
    requirements. The stability of our revenues and returns could be
    affected by our ability to continue to enforce these
    obligations. Also, at some of our energy-from-waste facilities,
    commodity price risk is mitigated by passing through commodity
    costs to contract counterparties.
    We agree to operate the facility and meet minimum waste
    processing capacity and efficiency standards, energy production
    levels and environmental standards. Failure to meet these
    requirements or satisfy the other material terms of our
    agreement (unless the failure is caused by our client community
    or by events beyond our control), may result in damages charged
    to us or, if the breach is substantial, continuing and
    unremedied, termination of the applicable agreement. These
    damages could include amounts sufficient to repay project debt
    (as reduced by amounts held in trust
    and/or
    proceeds from sales of facilities securing project debt) and as
    such, these contingent obligations cannot readily be quantified.
    We have issued performance guarantees to our client communities
    and, in some cases other parties, which guarantee that our
    project subsidiaries will perform in accordance with contractual
    terms including, where required, the payment of such damages. If
    one or more contracts were terminated for our default, these
    contractual damages may be material to our cash flow and
    financial condition. To date, we have not incurred material
    liabilities under such performance guarantees.
    The client community generally must deliver minimum quantities
    of municipal solid waste to the facility on a put-or-pay basis
    and is obligated to pay a fee for its disposal. A put-or-pay
    commitment means that the client community promises to deliver a
    stated quantity of waste and pay an agreed amount for its
    disposal, regardless of whether the full amount of waste is
    actually delivered. Where a Service Fee structure exists,
    portions of the service fee escalate to reflect indices for
    inflation, and in many cases, the client community must also pay
    for other costs, such as insurance, taxes, and transportation
    and disposal of the ash residue to 7




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the disposal site. Generally, expenses resulting from the
    delivery of unacceptable and hazardous waste on the site are
    also borne by the client community. In addition, the contracts
    generally require the client community to pay increased expenses
    and capital costs resulting from unforeseen circumstances,
    subject to specified limits. At three publicly-owned facilities
    we operate, our client community may terminate the operating
    contract under limited circumstances without cause.  Item 7.
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Overview 
    Contract Duration
  Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview  Acquisitions and
    Business Development Item 1A. Risk Factors  We may face
    increased risk of market influences on our revenues after our
    contracts expire.
  and/or
  Biomass
    Projects
     8




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Other
    Renewable Energy Projects
  and/or
  Hydroelectric
  Landfill Gas
    ContractDesign Capacity




Expiration DatesWaste


Gross




Service/Disposal


Electric




WasteLocation

(TPD)


(MW)


Nature of Interest

Disposal


EnergyA.

ENERGY-FROM-WASTE PROJECTSTIP FEE STRUCTURES1.

Alexandria/Arlington

Virginia


975



22.0


Owner/Operator


2013



20232.

Delaware Valley

Pennsylvania


2,688



87.0


Lessee/Operator


2017



20163.

Haverhill

Massachusetts


1,650



44.6


Owner/Operator


N/A



20194.

Hempstead(1)

New York


2,505



72.0


Owner/Operator


2034



20095.

Indianapolis(2)(3)

Indiana


2,362



6.5


Owner/Operator


2018



20286.

Kent County(2)(4)

Michigan


625



16.8


Operator


2023



20237.

Niagara(2)

New York


2,250



50.0


Owner/Operator


N/A



20148.

Pittsfield

Massachusetts


240



8.6


Owner/Operator


2015



20159.

Southeast Massachusetts(5)

Massachusetts


2,700



78.0


Owner/Operator


N/A



201510.

Springfield

Massachusetts


400



9.4


Owner/Operator


2014



201011.

Tulsa

Oklahoma


1,125



16.5


Owner/Operator


N/A



200912.

Union County

New Jersey


1,440



42.1


Lessee/Operator


2023



200913.

Warren County

New Jersey


450



13.5


Owner/Operator


N/A



2013SERVICE FEE STRUCTURES14.

Babylon

New York


750



16.8


Owner/Operator


2019



201815.

Bristol

Connecticut


650



16.3


Owner/Operator


2014



201416.

Detroit(2)(5)(6)

Michigan


2,832



68.0


Lessee/Operator


2009



202417.

Essex County

New Jersey


2,277



66.0


Owner/Operator


2020



202018.

Fairfax County

Virginia


3,000



93.0


Owner/Operator


2011



201519.

Harrisburg(7)

Pennsylvania


800



20.8


Operator


2018



200920.

Hartford(5)(8)

Connecticut


2,000



68.5


Operator


2012



201221.

Hennepin County

Minnesota


1,212



38.7


Operator


2018



201822.

Hillsborough County(9)

Florida


1,800



46.5


Operator


2027



201023.

Honolulu(5)(6)

Hawaii


2,160



57.0


Lessee/Operator


2010



201524.

Huntington(10)

New York


750



24.3


Owner/Operator


2012



201225.

Huntsville(2)

Alabama


690






Operator


2016



201426.

Lake County

Florida


528



14.5


Owner/Operator


2014



201427.

Lancaster County

Pennsylvania


1,200



33.1


Operator


2016



201628.

Lee County

Florida


1,836



57.3


Operator


2024



201529.

Marion County

Oregon


550



13.1


Owner/Operator


2014



201430.

Montgomery County

Maryland


1,800



63.4


Operator


2016



201031.

Onondaga County

New York


990



39.2


Owner/Operator


2015



202532.

Pasco County(11)

Florida


1,050



29.7


Operator


2016



202433.

Southeast Connecticut

Connecticut


689



17.0


Owner/Operator


2015



201734.

Stanislaus County

California


800



22.4


Owner/Operator


2010



201035.

Wallingford(12)

Connecticut


420



11.0


Owner/Operator


2020



2010SUBTOTAL


48,194



1,283.6 9




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ContractDesign Capacity




Expiration DatesWaste


Gross




Service/Disposal


Electric




WasteLocation

(TPD)


(MW)


Nature of Interest

Disposal


EnergyB.

ANCILLARY WASTE PROJECTS
    ASH and LANDFILLS36.

CMW  Semass

Massachusetts


1,700



N/A


Operator


2016



N/A37.

Haverhill

Massachusetts


555



N/A


Lessee/Operator


N/A



N/A38.

Peabody (ash only)

Massachusetts


700



N/A


Owner/Operator


N/A



N/A39.

Springfield (ash only)

Massachusetts


175



N/A


Owner/Operator


N/A



N/ASUBTOTAL


3,130TRANSFER STATIONS40.

Braintree

Massachusetts


1,200



N/A


Owner/Operator


2015



N/A41.

Canaan

New York


600



N/A


Owner/Operator


N/A



N/A42.

Derwood

Maryland


2,500



N/A


Operator


2015



N/A43.

Danvers

Massachusetts


250



N/A


Operator


2011



N/A44.

Essex

Massachusetts


6



N/A


Operator


2015



N/A45.

Holliston

Massachusetts


700



N/A


Owner/Operator


N/A



N/A46

Lynn

Massachusetts


885



N/A


Owner/Operator


N/A



N/A47.

Mamaroneck

New York


800



N/A


Owner/Operator


2015



N/A48.

Mt. Kisco

New York


350



N/A


Owner/Operator


2018



N/A49.

Springfield

Massachusetts


500



N/A


Owner/Operator


N/A



N/ASUBTOTAL


7,791C.

OTHER RENEWABLE ENERGY PROJECTS
    BIOMASS50.

Burney Mountain

California


N/A



11.4


Owner/Operator


N/A



201551.

Delano

California


N/A



49.5


Owner/Operator


N/A



201752.

Jonesboro

Maine


N/A



24.5


Owner/Operator


N/A



N/A53.

Mendota

California


N/A



25.0


Owner/Operator


N/A



201454.

Mount Lassen

California


N/A



11.4


Owner/Operator


N/A



201555.

Pacific Oroville

California


N/A



18.7


Owner/Operator


N/A



201656.

Pacific Ultrapower Chinese
    Station(13)

California


N/A



25.6


Part Owner


N/A



201757.

West Enfield

Maine


N/A



24.5


Owner/Operator


N/A



N/ASUBTOTAL






190.6HYDROELECTRIC58.

Koma Kulshan(14)

Washington


N/A



12.0


Part Owner/Operator


N/A



203759.

Weeks Falls(14)

Washington


N/A



5.0


Part Owner


N/A



2022SUBTOTAL






17.0LANDFILL GAS60.

Haverhill

Massachusetts


N/A



1.6


Lessee/Operator


N/A



N/A61.

Otay

California


N/A



7.4


Owner/Operator


N/A



2009-201562.

Oxnard

California


N/A



5.6


Owner/Operator


N/A



200963.

Salinas

California


N/A



1.5


Owner/Operator


N/A



201264.

Stockton

California


N/A



0.8


Owner/Operator


N/A



2012SUBTOTAL






16.9     (1)
    
    We entered into a new Tip Fee contract with the Town of
    Hempstead for a term of 25 years commencing upon expiration
    of the existing contract in August 2009. This contract provides
    approximately 50% of the facilitys capacity. We also
    entered into new Tip Fee contracts with other customers that
    expire between February 2011 and December 2014. These contracts
    provide an additional 40% of the facilitys capacity.(2)
    
    These facilities have been designed to export steam for sale.(3)
    
    We entered into a new Tip Fee contract with the City of
    Indianapolis for a term of 10 years which commenced upon
    expiration of the existing Service Fee contract in December
    2008. This contract represents approximately 50% of the
    facilitys capacity.(4)
    
    We entered into a new Tip Fee contract with Kent County in
    Michigan which commenced on January 1, 2009 and extended
    the existing contract from 2010 to 2023. This contract is
    expected to supply waste utilizing most or all of the
    facilitys capacity. Previously this was a Service Fee
    contract.(5)
    
    These facilities use a refuse-derived fuel technology.(6)
    
    We lease these projects from third party lessors under
    arrangements where the lease benefits and burdens are primarily
    those of the related client community. 10




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(7)
    
    We entered into a ten year agreement to maintain and operate an
    800 tpd energy-from-waste facility located in Harrisburg,
    Pennsylvania and have a right of first refusal to purchase the
    facility. See Note 3. Acquisitions, Business Development
    and Dispositions of the Notes.(8)
    
    Under contracts with the Connecticut Resource Recovery
    Authority, we operate only the boilers and turbines for this
    facility.(9)
    
    With respect to this project, we have entered into agreements to
    expand waste processing capacity from 1,200 tpd to 1,800 tpd and
    to increase gross electricity capacity from 29.0 MW to
    46.5 MW. The agreements also extended the contract term
    from 2007 to 2027. Completion of the expansion, and commencement
    of the operation of the expanded project, is expected in 2009.(10)
    
    Owned by a limited partnership in which the limited partners are
    not affiliated with us.(11)
    
    We entered into a new Service Fee contract with the Pasco County
    Commission in Florida which commenced on January 1, 2009
    and extended the existing contract from 2011 to 2016.(12)
    
    We entered into Tip Fee contracts which will supply waste to the
    Wallingford, Connecticut facility, following the expiration of
    the existing Service Fee contract in 2010. These contracts in
    total are expected to supply waste utilizing most or all of the
    facilitys capacity through 2020.(13)
    
    We have a 55% ownership interest in this project.(14)
    
    We have a 50% ownership interest in these projects. INTERNATIONAL
    BUSINESS  General
    Approach to International Projects
  and/or
  Item 1A. Risk Factors.
  
    Some of the countries in which we currently operate are lesser
    developed countries or developing countries where the political,
    social and economic conditions are quite different, and are
    often less stable, than those conditions prevailing in the
    United States or other developed countries. In order to mitigate
    these risks both at the outset of project development and over
    time, we often develop projects jointly with experienced and
    respected local companies.
    When a project is developed, we undertake a credit analysis of
    the proposed power purchaser
    and/or fuel
    suppliers (which for energy-from-waste projects are often
    municipal governments).
    We have typically sought to negotiate long-term contracts for
    the supply of fuel with reliable suppliers. For our projects
    that are not energy-from-waste facilities, we have sought, to
    the extent practicable, to shift the consequences of
    interruptions in the delivery of fuel (whether due to the fault
    of the fuel supplier or due to reasons beyond the fuel
    suppliers control) to the electricity purchaser or service
    recipient by securing a suspension of the projects
    operating responsibilities under the applicable agreements and
    an extension of our operating concession under such agreements.
    In some instances, we require the energy purchaser or service
    recipient to continue to make payments of fixed costs if such
    interruptions occur. In order to mitigate 11




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the effect of short-term interruptions in the supply of fuel, we
    have also endeavored to provide
    on-site
    storage of fuel in sufficient quantities to address such
    interruptions.  
    For our energy-from-waste projects in international markets, we
    expect that a significant portion of each projects waste
    supply would be under long-term contracts with sponsoring
    municipalities, thus reducing the risk of fuel supply
    interruptions or price instability. Where market conditions are
    favorable, we may also reserve a portion of a facilitys
    capacity for shorter term contracts, or receive waste on a spot
    basis.
    At some of our international independent power projects, our
    operating subsidiaries purchase fuel in the open market.
    However, in most cases, the fuel price risk is borne by the
    energy purchaser because such risk from changes in fuel prices
    is passed through under the contract. In some of our
    international projects, the project entity has entered into
    long-term fuel purchase contracts that protect the project from
    changes in fuel prices, provided counterparties to such
    contracts perform their commitments.
    Payment for services that we provide will often be made in whole
    or in part in the domestic currencies of the host countries.
    Local governments generally do not assure conversion of such
    currencies into U.S. dollars, which may be subject to
    limitations in the currency markets, as well as restrictions of
    the host country. In addition, fluctuations in the value of such
    currencies against the value of the U.S. dollar may cause
    our participation in such projects to yield less return than
    expected. Transfer of earnings, capital and profits in any form
    beyond the borders of the host country may be subject to special
    taxes or limitations imposed by host country laws. We have
    sought to participate in projects where the host country has
    allowed the convertibility of its currency into
    U.S. dollars and repatriation of earnings, capital and
    profits subject to compliance with local regulatory
    requirements. In some cases, components of project costs
    incurred or funded in U.S. dollars are recovered without
    risk of currency fluctuation through negotiated contractual
    adjustments to the price charged for electricity or service
    provided. This contractual structure may cause the cost in local
    currency to the projects power purchaser or service
    recipient to rise from time to time in excess of local
    inflation, and consequently there is risk in such situations
    that such power purchaser or service recipient will, at least in
    the near-term, be less able or willing to pay for the
    projects power or service.    
    developing projects jointly with experienced local partners;
    political and financial analysis of the host countries and the
    key participants in each project;
    guarantees of relevant agreements with creditworthy entities;
    political risk and other forms of insurance; and/or
    participation by United States
    and/or
    international development finance institutions in the financing
    of projects.       12




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International
    Projects
    Energy-From-Waste
  In
    Operation
  long-term short-term
  mass-burn energy-from-waste privately-owned long-term long-term state-owned
  Under
    Advanced Development/Construction
  China
 energy-from-waste
  Ireland
 energy-from-waste co-own
  25-year build-own-operate-transfer 25-year short-term
 13




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Hydroelectric
  long-term
  Coal
  coal-fired
  take-or-pay all-in wholly-owned long-term
  coal-fired long-term short-term
  Natural
    Gas
  barge-mounted gas-fired Al-Jomaih off-take all-in pre-determined pre-determined long-term
  Heavy
    Fuel-Oil
  fuel-oil
 14




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long-term pass-through all-in 15-year long-term
  and/or and/or
    Design CapacityWaste







Contract Expiration DatesDisposal


Gross




Service/(Metric


Electric




WasteLocation

TPD)


(MW)


Nature of Interest

Disposal


EnergyA.

ENERGY-FROM-WASTETIP FEE STRUCTURES1.

Fuzhou(1)(2)

China


1,200



24


Part Owner


2032



N/A2.

Tongqing(1)

China


1,200



24


Part Owner/Operator


2027



N/A3.

Trezzo(3)

Italy


500



18


Part Owner/Operator


2023



2023SUBTOTAL


2,900



66B.

HYDROELECTRIC4.

Don Pedro(4)

Costa Rica


N/A



14


Part Owner/Operator


N/A



20095.

Rio Volcan(4)

Costa Rica


N/A



17


Part Owner/Operator


N/A



2009SUBTOTAL






31C.

COAL6.

Quezon(5)

Philippines


N/A



510


Part Owner/Operator


N/A



20257.

Yanjiang(6)

China


N/A



24


Part Owner/Operator


N/A



N/ASUBTOTAL






534D.

NATURAL GAS8.

Haripur(7)

Bangladesh


N/A



126


Part Owner/Operator


N/A



2014E.

HEAVY
    FUEL-OIL9.

Madurai(8)

India


N/A



106


Part Owner/Operator


N/A



201610.

Samalpatti(9)

India


N/A



106


Part Owner/Operator


N/A



2016SUBTOTAL






212     (1)
    
    We have a 40% equity interest in Sanfeng, which owns equity
    interests of approximately 32% and 25% in the Fuzhou and
    Tongqing projects, respectively. Sanfeng operates the Tongqing
    project. The Fuzhou project company, in which Sanfeng has a 32%
    interest, operates the Fuzhou project. Ownership of these
    projects transfers to the applicable municipality at the
    expiration of the applicable concession agreement.(2)
    
    In December 2008, we entered into an agreement with Beijing
    Baoluo to purchase a direct 58% equity interest in the Fuzhou
    project for approximately $14 million. This purchase is
    conditional upon various regulatory and other conditions
    precedent and is expected to close in early 2009. See
    Note 3. Acquisitions, Business Development and Dispositions
    of the Notes. 15




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(3)
    
    We have a 13% interest in this project and a 40% interest in the
    operator Ambiente 2000 S.r.l.(4)
    
    We have nominal ownership interests in these projects.(5)
    
    We have an approximate 26% ownership interest in this project.(6)
    
    We have an approximate 96% ownership interest in this project.
    Assets of this project revert back to the local Chinese partner
    at the expiration of the Joint Venture Contract in 2017.(7)
    
    We have an approximate 45% ownership interest in this project.
    This project is capable of operating through combustion of
    diesel oil in addition to natural gas.(8)
    
    We have an approximate 77% ownership interest in this project.(9)
    
    We have a 60% ownership interest in this project. MARKETS,
    COMPETITION AND BUSINESS CONDITIONS  General
    Business Conditions
  long-term
  Conditions
    Affecting Our Existing Business
  short-term
    
    regional population and overall waste production rates;
    the number of other waste disposal sites (including principally
    landfills and transfer stations) in existence or in the planning
    or permitting process;
    the available disposal capacity (in terms of tons of waste per
    day) that can be offered by other regional disposal
    sites; and
    the availability and cost of transportation options (e.g., rail,
    inter-modal, trucking) to provide access to more distant
    disposal sites, thereby affecting the size of the waste shed
    itself.  Item 1A. Risk Factors  Our waste operations
    are concentrated in one region, and expose us to regional
    economic or market declines
 16




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Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview  Contract Duration
  Item 1A. Risk Factors  We may face
    increased risk of market influences on our revenues after our
    contracts expire
    Conditions
    Affecting Our Growth
    Regulation of
    Business  Regulations Affecting our Domestic
    Business  Recent Policy Debate Regarding Climate
    Change and Renewable Energy.
  and/or and/or
 17




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Item 1A. Risk Factors
  Technology,
    Research and Development
        energy-from-waste and/or pre-combustion and/or
   18




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and/or
 REGULATION OF
    BUSINESS  Regulations
    Affecting Our Domestic Business
  Environmental
    Regulations
      Item 1A. Risk Factors  Compliance with
    environmental laws could adversely affect our results of
    operations.
  and/or
   19




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non-attainment
        Energy
    Regulations
   20




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Federal Power Act 
  and/or
    Public Utility Holding Company Act of 2005 
    Public Utility Regulatory Policies Act 
   21




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Recent
    Policy Debate Regarding Climate Change and Renewable
    Energy
  2 2
  
    Avoids
    CO2
    emissions from fossil fuel power plants,
    Avoids methane emissions from landfills,
    Avoids habitat destruction and contamination from
    landfilling, and
    Avoids GHG emissions from mining and processing metal because it
    recovers and recycles scrap metals from waste.          2 2
   22




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2
          Regulations
    Affecting Our International Business
    Item 1A. Risk Factors  Exposure to
    international economic and political factors may materially and
    adversely affect our international businesses  Compliance with environmental laws could
    adversely affect our results of operations.
  Climate
    Change Policies
   23




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energy-from-waste
       EMPLOYEES       24




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EXECUTIVE
    OFFICERS    Anthony J. Orlando
  Mark A. Pytosh
  John M. Klett
  Seth Myones
  Timothy J. Simpson
  Thomas E. Bucks
  Item 1A.
    RISK
    FACTORS    Changes
    in public policies and legislative initiatives could materially
    affect our business and prospects.
   25




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and/or
  Weakness
    in the economy may have an adverse effect on our revenue and
    cash flow.
    Weakness
    in the economy may have an adverse effect on our ability to grow
    our business.
    We may
    face increased risk of market influences on our revenues after
    our contracts expire.
     26




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Recent
    dislocations in credit and capital markets may make it more
    difficult for us to borrow money or raise capital needed to
    finance the construction of new projects and/or the expansion of
    our existing projects, as well as our ability to finance the
    acquisitions of certain businesses.
  and/or and/or
  and/or
  Changes
    in technology may have a material adverse effect on our
    profitability.
  and/or
  Operation
    of our facilities involves significant risks.
    
    the inaccuracy of our assumptions with respect to the timing and
    amount of anticipated revenues;
    supply interruptions;
    the breakdown or failure of equipment or processes;
    difficulty or inability to find suitable replacement parts for
    equipment;
    increases in the prices of commodities we need to continue
    operating our facilities;
    the unavailability of sufficient quantities of waste or fuel;
    fluctuations in the heating value of the waste we use for fuel
    at our energy-from-waste facilities;
    decreases in the fees for solid waste disposal and electricity
    generated;
    decreases in the demand or market prices for recovered ferrous
    or non-ferrous metal;
    disruption in the transmission of electricity generated;
    permitting and other regulatory issues, license revocation and
    changes in legal requirements;
    labor disputes and work stoppages;
    unforeseen engineering and environmental problems;
    unanticipated cost overruns;
    weather interferences, catastrophic events including fires,
    explosions, earthquakes, droughts and acts of terrorism;
    the exercise of the power of eminent domain; and
    performance below expected levels of output or efficiency.   27




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##### Table of Contents



Development
    and construction of new projects and expansions may not commence
    as anticipated, or at all.
    
    difficulties in identifying, obtaining and permitting suitable
    sites for new projects;
    the inaccuracy of our assumptions with respect to the cost of
    and schedule for completing construction;
    difficulty, delays or inability to obtain financing for a
    project on acceptable terms;
    delays in deliveries of, or increases in the prices of,
    equipment sourced from other countries;
    the unavailability of sufficient quantities of waste or other
    fuels for startup;
    permitting and other regulatory issues, license revocation and
    changes in legal requirements;
    labor disputes and work stoppages;
    unforeseen engineering and environmental problems;
    unanticipated cost overruns; and
    weather interferences, catastrophic events including fires,
    explosions, earthquakes, droughts and acts of terrorism.    Changes
    in labor laws could adversely affect our relationship with our
    employees and cause disruptions to our business.
    Construction
    activities may cost more and take longer than we
    estimate.
    The
    rapid growth of our operations could strain our resources and
    cause our business to suffer.
   28




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Our
    efforts to grow our business will require us to incur
    significant costs in business development, often over extended
    periods of time, with no guarantee of success.
    A
    failure to identify suitable acquisition candidates and to
    complete acquisitions could have an adverse effect on our
    business strategy and growth plans.
    Our
    insurance and contractual protections may not always cover lost
    revenues, increased expenses or liquidated damages
    payments.
    Performance
    reductions could materially and adversely affect us and our
    projects may operate at lower levels than
    expected.
     29




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Our
    businesses generate their revenue primarily under long-term
    contracts and must avoid defaults under those contracts in order
    to service their debt and avoid material liability to contract
    counterparties.
    We
    have provided guarantees and financial support in connection
    with our projects.
    
    support agreements in connection with service or operating
    agreement-related obligations;
    direct guarantees of certain debt relating to our facilities;
    contingent obligations to pay lease payment installments in
    connection with certain of our facilities;
    agreements to arrange financing for projects under development;
    contingent credit support for damages arising from performance
    failures;
    environmental indemnities; and
    contingent capital and credit support to finance costs, in most
    cases in connection with a corresponding increase in service
    fees, relating to uncontrollable circumstances.    Our
    businesses depend on performance by third parties under
    contractual arrangements.
    Concentration
    of suppliers and customers may expose us to heightened financial
    exposure.
     30




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##### Table of Contents



Our
    waste operations are concentrated in one region, and expose us
    to regional economic or market declines.
    Some
    of our energy contracts involve greater risk of exposure to
    performance levels which could result in materially lower
    revenues.
    Exposure
    to international economic and political factors may materially
    and adversely affect our international businesses.
      
    changes in law or regulations;
    changes in electricity pricing;
    changes in foreign tax laws and regulations;
    changes in United States federal, state and local laws,
    including tax laws, related to foreign operations;
    compliance with United States federal, state and local foreign
    corrupt practices laws;
    changes in government policies or personnel;
    changes in general economic conditions affecting each country,
    including conditions in financial markets;
    changes in labor relations in operations outside the United
    States;
    political, economic or military instability and civil unrest;
    expropriation and confiscation of assets and facilities; and
    credit quality of entities that purchase our power.     31




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Our
    reputation could be adversely affected if opposition to our
    efforts to grow our business results in adverse publicity or our
    businesses were to fail to comply with United States or foreign
    laws or regulations.
    Exposure
    to foreign currency fluctuations may affect our results from
    operations.
      Exposure
    to fuel supply prices may affect our costs and results of
    operations.
      Our
    inability to obtain resources for operations may adversely
    affect our ability to effectively compete.
   32




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Compliance
    with environmental laws could adversely affect our results of
    operations.
    and/or
    Energy
    regulation could adversely affect our revenues and costs of
    operations.
         33




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Failure
    to obtain regulatory approvals could adversely affect our
    operations.
    The
    energy industry is becoming increasingly competitive, and we
    might not successfully respond to these changes.
    Our
    substantial indebtedness could adversely affect our business,
    financial condition and results of operations and our ability to
    meet our payment obligations under our
    indebtedness.
    
    making it difficult for us to meet our payment and other
    obligations under our outstanding indebtedness, including the
    1.00% Senior Convertible Debentures (the
    Debentures);
    limiting our ability to obtain additional financing to fund
    working capital, capital expenditures, acquisitions and other
    general corporate purposes;
    subjecting us to the risk of increased sensitivity to interest
    rate increases on indebtedness under our credit facilities;
    limiting our flexibility in planning for, or reacting to, and
    increasing our vulnerability to, changes in our business, the
    industries in which we operate and the general economy; and
    placing us at a competitive disadvantage compared to our
    competitors that have less debt or are less leveraged.    We
    cannot assure you that our cash flow from operations will be
    sufficient to service our indebtedness.
    
    the continued operation and maintenance of our facilities,
    consistent with historical performance levels;
    maintenance or enhancement of revenue from renewals or
    replacement of existing contracts and from new contracts to
    expand existing facilities or operate additional facilities; 34




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##### Table of Contents




    market conditions affecting waste disposal and energy pricing,
    as well as competition from other companies for contract
    renewals, expansions and additional contracts, particularly
    after our existing contracts expire; and
    general economic, financial, competitive, legislative,
    regulatory and other factors.    Our
    debt agreements contain covenant restrictions that may limit our
    ability to operate our business.
    
    incurring additional indebtedness or issuing guarantees, in
    excess of specified amounts;
    creating liens, in excess of specified amounts;
    making certain investments, in excess of specified amounts;
    entering into transactions with our affiliates;
    selling certain assets, in excess of specified amounts;
    making cash distributions or paying dividends to us, in excess
    of specified amounts;
    redeeming capital stock or making other restricted payments to
    us, in excess of specified amounts; and
    merging or consolidating with any person.    We
    cannot be certain that our NOLs will continue to be available to
    offset tax liability.
     35




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##### Table of Contents



Our
    controls and procedures may not prevent or detect all errors or
    acts of fraud.
    Failure
    to maintain an effective system of internal control over
    financial reporting may have an adverse effect on our stock
    price.
  Form 10-K
    Provisions
    of our certificate of incorporation and Debentures could
    discourage an acquisition by a third party.
   36




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##### Table of Contents



The
    market price of our common stock may fluctuate significantly,
    and this may make it difficult for holders to resell our common
    stock when they want or at prices that they find
    attractive.
      
    changes in the waste and energy market conditions;
    quarterly variations in our operating results;
    our operating results that vary from the expectations of
    management, securities analysts and investors;
    changes in expectations as to our future financial performance;
    announcements of strategic developments, significant contracts,
    acquisitions and other material events by us or our competitors;
    the operating and securities price performance of other
    companies that investors believe are comparable to us;
    future sales of our equity or equity-related securities;
    changes in the economy and the financial markets;
    purchases or sales of large blocks of our stock by existing or
    new holders of our common stock;
    departures of key personnel;
    changes in governmental regulations; and
    geopolitical conditions, such as acts or threats of terrorism or
    military conflicts.    Future
    issuances of our common stock will dilute the ownership
    interests of stockholders and may adversely affect the trading
    price of our common stock.
    Concentrated
    stock ownership may discourage unsolicited acquisition
    proposals.
  (05-07) Fund 05-07
 37




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##### Table of Contents



Item 1B.
    UNRESOLVED
    STAFF COMMENTS  None.
  Item 2.
    PROPERTIES  and/or Item 1.
    Business  Domestic Business
  Item 1. Business  International
    Business
  Item 3.
    LEGAL
    PROCEEDINGS    Item 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   38




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##### Table of Contents



PART II  Item 5.
    MARKET
    FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES    2008


2007High


Low


High


LowFirst Quarter

$
29.50


$
22.89


$
24.22


$
21.29Second Quarter

$
30.37


$
26.03


$
26.35


$
21.69Third Quarter

$
29.86


$
20.40


$
26.50


$
20.60Fourth Quarter

$
23.78


$
15.46


$
28.82


$
23.16     Item 6.
    SELECTED
    FINANCIAL DATA  For the Years Ended December 31,2008


2007


2006


2005(1)


2004(2)(In thousands, except per share amounts)Statements of Operations DataOperating revenues

$
1,664,253


$
1,433,087


$
1,268,536


$
978,763


$
576,196Equity in net income from unconsolidated investments

$
23,583


$
22,196


$
28,636


$
25,609


$
17,024Net income

$
139,273


$
130,513


$
105,789


$
59,326


$
34,094Income per share:Basic

$
0.91


$
0.85


$
0.73


$
0.49


$
0.39Diluted

$
0.90


$
0.85


$
0.72


$
0.46


$
0.37Weighted average common shares outstanding:Basic


153,345



152,653



145,663



122,209



88,543Diluted


154,732



153,997



147,030



127,910



91,199   As of December 31,2008


2007


2006


2005(1)


2004(2)(In thousands, except per share amounts)Balance Sheet DataCash and cash equivalents

$
192,393


$
149,406


$
233,442


$
128,556


$
96,148Restricted funds held in trust

$
324,911


$
379,864


$
407,921


$
447,432


$
239,918Property, plant and equipment, net

$
2,530,035


$
2,620,507


$
2,637,923


$
2,724,843


$
819,400Total assets

$
4,279,989


$
4,368,499


$
4,437,820


$
4,702,165


$
1,939,081Long-term debt

$
1,012,887


$
1,019,432


$
1,260,123


$
1,308,119


$
312,896Project debt

$
1,078,370


$
1,280,275


$
1,435,947


$
1,598,284


$
944,737Stockholders equity

$
1,152,119


$
1,026,062


$
739,152


$
599,241


$
134,815Book value per share of common stock(3)

$
7.47


$
6.67


$
5.01


$
4.24


$
1.84Shares of common stock outstanding


154,280



153,922



147,500



141,166



73,430  39




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##### Table of Contents



(1)
    
    For the year ended December 31, 2005, Covanta ARC Holdings,
    Inc.s results of operations were included in our
    consolidated results subsequent to June 24, 2005.(2)
    
    For the year ended December 31, 2004, Covanta Energy
    Corporations results of operations were included in our
    consolidated results subsequent to March 10, 2004.(3)
    
    Book value per share of common stock is calculated by dividing
    stockholders equity by the number of shares of common
    stock outstanding.  Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS   OVERVIEW    and/or
      
    providing customers with superior service and effectively
    managing our existing businesses;
    generating sufficient cash to meet our liquidity needs and
    invest in the business; and
    developing new projects and making acquisitions to grow our
    business in the Americas, Europe and Asia.     40




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##### Table of Contents




    investing in research and development of new technologies to
    enhance existing operations and create new business
    opportunities in renewable energy and waste management;
    exploring and implementing processes and technologies at our
    facilities to improve energy efficiency and lessen environmental
    impacts; and
    partnering with governments and non-governmental organizations
    to pursue sustainable programs, reduce the use of
    environmentally harmful materials in commerce and communicate
    the benefits of energy-from-waste.      and/or
  Economic
    Factors Affecting Business Conditions
     41




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Acquisitions
    and Business Development
    and/or
  2008
    acquisitions and business development
  Domestic
    Business
  
    We acquired Indeck Maine, LLC from co-owners Ridgewood Maine,
    L.L.C. and Indeck Energy Services, Inc. Indeck Maine, LLC owned
    and operated two biomass energy facilities. The two nearly
    identical facilities, located in West Enfield and Jonesboro,
    Maine, added a total of 49 gross megawatts (MW)
    to our renewable energy portfolio. We have begun to sell the
    electric output and intend to sell renewable energy credits from
    these facilities into the New England market. We acquired these
    two facilities for cash consideration of approximately
    $53.3 million, net of cash acquired, subject to final
    working capital adjustments.
    We acquired an energy-from-waste facility in Tulsa, Oklahoma
    from The CIT Group/Equipment Financing, Inc. for cash
    consideration of approximately $12.7 million. The design
    capacity of the facility is 1,125 tons per day (tpd)
    of waste and gross electric capacity of 16.5 MW. This
    facility was shut down by the prior owner in the summer of 2007
    and we returned two of the facilitys three boilers to
    service in November 2008, and plan to return its third boiler to
    service during 2009. During the year ended December 31,
    2008, we invested approximately $4.9 million in capital
    improvements to restore the operational performance of the
    facility.
    We acquired a landfill for the disposal of ash in Peabody,
    Massachusetts for cash consideration of approximately
    $7.4 million. We expect to utilize this landfill for
    disposal of ash from energy-from-waste facilities in the
    Northeast United States, including those that we own or operate.
    We entered into new tip fee contracts which will supply waste to
    the Wallingford, Connecticut facility, following the expiration
    of the existing service fee contract in 2010. These contracts in
    total are expected to supply waste utilizing most or all of the
    facilitys capacity through 2020.
    We entered into a new tip fee contract with Kent County in
    Michigan which commenced on January 1, 2009 and extended
    the existing contract from 2010 to 2023. This contract is
    expected to supply waste utilizing most or all of the
    facilitys capacity. Previously this was a service fee
    contract.
    We entered into a new service fee contract with the Pasco County
    Commission in Florida which commenced on January 1, 2009
    and extended the existing contract from 2011 to 2016.
    We entered into a new tip fee contract with the City of
    Indianapolis for a term of 10 years which commenced upon
    expiration of the existing service fee contract in December
    2008. This contract represents approximately 50% of the
    facilitys capacity.
    We entered into various agreements with multiple partners to
    invest in the development, testing or licensing of new
    technologies related to the transformation of waste materials
    into renewable fuels or the generation of energy. Initial
    licensing fees and demonstration unit purchases approximated
    $6.5 million during 2008.  International
    Business
  
    We entered into an agreement with Beijing Baoluo Investment Co.,
    Ltd. (Beijing Baoluo) to purchase a direct 58% equity
    interest in the Fuzhou project, a 1,200 metric tpd 24 MW
    mass-burn energy-from-waste project in China, for approximately
    $14 million. This purchase is conditional upon various
    regulatory and 42




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##### Table of Contents



other conditions precedent and is expected to close in early
    2009. In 2007, we acquired a 40% equity interest in Chongqing
    Sanfeng Covanta Environmental Industry Co., Ltd.
    (Sanfeng), a company located in Chongqing
    Municipality, Peoples Republic of China, which is engaged
    in the business of owning and operating energy-from-waste
    projects and providing design and engineering, procurement and
    construction services for energy-from-waste facilities in China.
    Sanfeng owns a 32% equity interest in the Fuzhou project.  
    We and Chongqing Iron & Steel Company (Group) Limited
    have entered into a 25 year contract to build, own, and
    operate an 1,800 tpd energy-from-waste facility for Chengdu
    Municipality in Sichuan Province, Peoples Republic of
    China. In connection with this award, we invested
    $17.1 million for a 49% equity interest in the project
    joint venture company. The Chengdu project is expected to
    commence construction in early 2009, and commence operations in
    2011.  2007
    acquisitions and business development
  Domestic
    Business
  
    We acquired the operating businesses of EnergyAnswers
    Corporation (EnergyAnswers) for cash consideration
    of approximately $41 million. We also assumed net debt of
    $21 million ($23 million of consolidated indebtedness
    net of $2 million of restricted funds held in trust). These
    businesses include a 400 tpd energy-from-waste facility in
    Springfield, Massachusetts and a 240 tpd energy-from-waste
    facility in Pittsfield, Massachusetts. Both energy-from-waste
    projects have tip fee type contracts. Approximately 75% of waste
    revenues are contracted for at these facilities. In addition, we
    acquired businesses that include a landfill operation for ash
    disposal in Springfield, Massachusetts, and two transfer
    stations, one in Canaan, New York, permitted to transfer 600 tpd
    of waste, and the other located at the Springfield
    energy-from-waste facility, permitted to transfer 500 tpd of
    waste. We subsequently sold certain assets acquired in this
    transaction for a total consideration of $5.8 million
    during the fourth quarter of 2007 and during the first quarter
    of 2008.
    We acquired Central Valley Biomass Holdings, LLC (Central
    Valley) from The AES Corporation. Under the terms of
    the purchase agreement, we paid cash consideration of
    $51 million, plus approximately $5 million in cash
    related to post-closing adjustments and transaction costs.
    Central Valley owned two biomass energy facilities and a biomass
    energy fuel management business, all located in
    Californias Central Valley. These facilities added
    75 MW to our portfolio of renewable energy plants. In
    addition, we invested approximately $8 million prior to
    December 31, 2007, and approximately $11 million
    during the year ended December 31, 2008, in capital
    improvements to increase the facilities productivity and
    improve environmental performance. These capital improvements
    were completed prior to September 30, 2008.
    We entered into a new tip fee contract with the Town of
    Hempstead in New York for a term of 25 years commencing
    upon expiration of the existing contract in August 2009. This
    contract provides approximately 50% of the facilitys
    capacity. We also entered into new tip fee contracts with other
    customers that expire between February 2011 and December 2014.
    These contracts provide an additional 40% of the facilitys
    capacity.
    We acquired two waste transfer stations in Westchester County,
    New York from Regus Industries, LLC for cash consideration of
    approximately $7.3 million. These facilities increased our
    total waste capacity by approximately 1,150 tpd and enhance our
    portfolio of transfer stations in the Northeast United States.
    We acquired a waste transfer station in Holliston, Massachusetts
    from Casella Waste Systems Inc. for cash consideration of
    approximately $7.5 million. This facility increased our
    total waste capacity by approximately 700 tpd. In addition, we
    invested approximately $4.2 million prior to
    December 31, 2007 and approximately $1 million during
    the year ended December 31, 2008 in capital improvements to
    enhance the environmental and operational performance of the
    transfer station.
    We completed the expansion and commenced the operation of the
    expanded energy-from-waste facility located in and owned by Lee
    County in Florida. We expanded waste processing capacity from
    1,200 tpd to 43




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##### Table of Contents



1,836 tpd and increased gross electricity capacity from
    36.9 MW to 57.3 MW. As part of the agreement to
    implement this expansion, we received a long-term operating
    contract extension expiring in 2024.  
    We entered into a ten year agreement to maintain and operate an
    800 tpd energy-from-waste facility located in Harrisburg,
    Pennsylvania and obtained a right of first refusal to purchase
    the facility. Under the agreement, the term of which commenced
    February 1, 2008 following satisfaction of certain
    conditions precedent, we will earn a base annual service fee of
    approximately $10.5 million, which is subject to annual
    escalation and certain performance-based adjustments. We have
    also agreed to provide construction management services and to
    advance up to $25.5 million in funding for certain facility
    improvements required to enhance facility performance, the
    repayment of which is guaranteed by the City of Harrisburg. As
    of December 31, 2008, we advanced $8.2 million under
    this funding arrangement. The facility improvements are expected
    to be completed by mid 2009.
    We designed, constructed, operate and maintain the 1,200 tpd
    mass-burn energy-from-waste facility located in and owned by
    Hillsborough County in Florida. In August 2005, we entered into
    agreements with Hillsborough County to implement an expansion,
    and to extend the agreement under which we operate the facility
    to 2027. During 2006, environmental and other project related
    permits were secured and the expansion construction commenced on
    December 29, 2006. Completion of the expansion, and
    commencement of the operation of the expanded project, is
    expected in 2009.
    We acquired an additional 5% ownership interest in Pacific
    Ultrapower Chinese Station, a biomass energy facility located in
    California, which increased our equity ownership interest to 55%.  International
    Business
  
    In December 2007, we entered into a joint venture with Guangzhou
    Development Power Investment Co., Ltd. through which we intend
    to develop energy-from-waste projects in Guangdong Province,
    Peoples Republic of China. We hold a 40% equity interest
    in the joint venture entity, Guangzhou Development Covanta
    Environmental Energy Co., Ltd (GDC Environmental
    Energy), and on June 6, 2008, we invested
    $1.5 million in this joint venture following receipt of
    final government approvals. We expect to make additional
    investments as and when GDC Environmental Energy is successful
    in developing projects.
    We purchased a 40% equity interest in Sanfeng, a company located
    in Chongqing Municipality, Peoples Republic of China.
    Sanfeng is engaged in the business of owning and operating
    energy-from-waste projects and providing design and engineering,
    procurement and construction services for energy-from-waste
    facilities in China. Sanfeng currently owns minority equity
    interests in two 1,200 metric tpd 24 MW mass-burn
    energy-from-waste projects. Chongqing Iron & Steel
    Company (Group) Limited holds the remaining 60% equity interest
    in Sanfeng. We paid approximately $10 million in connection
    with our investment in Sanfeng. We expect to utilize Sanfeng as
    a key component of our effort to grow our energy-from-waste
    business in China. We expect to make additional investments as
    and when Sanfeng is successful in developing additional projects.
    We announced that we have entered into definitive agreements for
    the development of a 1,700 metric tpd energy-from-waste project
    serving the City of Dublin, Ireland and surrounding communities.
    The Dublin project, which marks our most significant entry to
    date into the European waste and renewable energy markets, is
    being developed and will be owned by Dublin Waste to Energy
    Limited, which we control and co-own with DONG Energy Generation
    A/S. Under the Dublin project agreements, several customary
    conditions must be satisfied before full construction can begin,
    including the issuance of all required licenses and permits and
    approvals.We are responsible for the design and construction of the
    project, which is estimated to cost approximately
    350 million euros and will require 36 months to
    complete, once full construction commences. We will operate and
    maintain the project for Dublin Waste to Energy Limited, which
    has a
    25-year tip
    fee type contract with Dublin to provide disposal service for
    approximately 320,000 metric tons of waste annually. The project
    is structured on a build-own-operate-transfer model, where
    ownership will transfer to Dublin after the
    25-year
    term, unless extended. The project is expected to sell
    electricity into the local grid under short-term arrangements.
    We and DONG Energy Generation A/S have committed to provide
    financing for 44




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##### Table of Contents



all phases of the project, and we expect to arrange for project
    financing. The primary approvals and licenses for the project
    have been obtained, and any remaining consents and approvals
    necessary to begin full construction are expected to be obtained
    in due course. We have begun to perform preliminary site
    demolition work and expect to commence full construction during
    the second quarter of 2009.  Business
    Segments
    Domestic
    International
  and/or
  Contract
    Structures
  and/or
       45




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##### Table of Contents



Contract
    Duration
    Energy-from-Waste
    Project Ownership
     46




---



##### Table of Contents



Seasonal
    Trends
    Other
    Factors Affecting Performance
  Item 1A. Risk Factors.
    
    Seasonal or long-term changes in market prices for waste,
    energy, or ferrous and non-ferrous metals, for projects where we
    sell into those markets;
    Seasonal geographic changes in the price and availability of
    wood waste as fuel for our biomass facilities; 47




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##### Table of Contents




    Seasonal, geographic and other variations in the heat content of
    waste processed, and thereby the amount of waste that can be
    processed by an energy-from-waste facility;
    Our ability to avoid unexpected increases in operating and
    maintenance costs while ensuring that adequate facility
    maintenance is conducted so that historic levels of operating
    performance can be sustained;
    Contract counterparties ability to fulfill their
    obligations, including the ability of our various municipal
    customers to supply waste in contractually committed amounts,
    and the availability of alternate or additional sources of waste
    if excess processing capacity exists at our facilities; and
    The availability and adequacy of insurance to cover losses from
    business interruption in the event of casualty or other insured
    events.    
    Changes in fuel price for projects in which such costs are not
    completely passed through to the electricity purchaser through
    revenue adjustments, or delays in the effectiveness of revenue
    adjustments;
    The amounts of electricity actually requested by purchasers of
    electricity, and whether or when such requests are made, our
    facilities are then available to deliver such electricity;
    The financial condition and creditworthiness of purchasers of
    power and services provided by us;
    Fluctuations in the value of the domestic currency against the
    value of the U.S. dollar for projects in which we are paid
    in whole or in part in the domestic currency of the host
    country; and
    Political risks inherent to the international business which
    could affect both the ability to operate the project in
    conformance with existing agreements and the repatriation of
    dividends from the host country. RESULTS
    OF OPERATIONS  Acquisitions and Business
    Development,
 48




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##### Table of Contents



RESULTS
    OF OPERATIONS  Year Ended December 31, 2008 vs.
    Year Ended December 31, 2007    For the Years Ended


IncreaseDecember 31,


(Decrease)2008


2007


2008 vs 2007CONSOLIDATED RESULTS OF OPERATIONS:Total operating revenues

$
1,664,253


$
1,433,087


$
231,166Total operating expenses


1,408,288



1,196,477



211,811Operating income


255,965



236,610



19,355Other income (expense):Investment income


5,717



10,578



(4,861
)Interest expense


(46,804
)


(67,104
)


(20,300
)Loss on extinguishment of debt






(32,071
)


(32,071
)Total other expenses


(41,087
)


(88,597
)


(47,510
)Income before income tax expense, minority interests and equity
    in net income from unconsolidated investments


214,878



148,013



66,865Income tax expense


(92,227
)


(31,040
)


61,187Minority interests


(6,961
)


(8,656
)


(1,695
)Equity in net income from unconsolidated investments


23,583



22,196



1,387NET INCOME

$
139,273


$
130,513



8,760Weighted Average Common Shares Outstanding:Basic


153,345



152,653



692Diluted


154,732



153,997



735Earnings Per Share:Basic

$
0.91


$
0.85


$
0.06Diluted

$
0.90


$
0.85


$
0.05     Consolidated
    Results of
    Operations
    Comparison of Results for the Year Ended December 31, 2008
    vs. Results for the Year Ended December 31,
    2007
    
    increased waste and energy revenues at our existing
    energy-from-waste facilities,
    additional revenues from new businesses acquired in the Domestic
    segment, and
    increased demand from the electricity offtaker and resulting
    higher electricity generation at our Indian facilities in the
    International segment.    
    increased plant operating expenses at our existing
    energy-from-waste facilities resulting from increased plant
    maintenance and cost escalations in the Domestic
    segment, and
    increased plant operating expenses resulting from additional
    operating and maintenance costs from new businesses acquired in
    the Domestic segment, and
    higher fuel costs, resulting from increased demand from the
    electricity offtaker and resulting higher electricity
    generation, at our Indian facilities in the International
    segment, and
    higher general and administrative expenses primarily due to
    increased efforts to grow the business and normal wage and
    benefit escalations. 49




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##### Table of Contents



Liquidity
      Domestic
    Business Results of
    Operations
    Comparison of Results for the Year Ended December 31, 2008
    vs. Results for the Year Ended December 31,
    2007
    For the Years Ended December 31,


Increase (Decrease)2008


2007


2008 vs 2007Waste and service revenues

$
930,537


$
860,252


$
70,285Electricity and steam sales


384,640



325,804



58,836Other operating revenues


56,254



59,561



(3,307
)Total operating revenues


1,371,431



1,245,617



125,814Plant operating expenses


753,848



664,641



89,207Depreciation and amortization expense


190,659



187,875



2,784Net interest expense on project debt


47,816



48,198



(382
)General and administrative expenses


76,090



71,022



5,068Insurance recoveries, net of write-down of assets


(8,325
)






(8,325
)Other operating expense


56,336



53,789



2,547Total operating expenses


1,116,424



1,025,525



90,899Operating income

$
255,007


$
220,092



34,915   Operating
    Revenues
    Domestic SegmentOperating Revenue VariancesExisting


NewBusiness


Business (A)


TotalWaste and service revenuesService fee

$
13.3


$
0.6


$
13.9Tip fee


3.9



30.4



34.3Recycled metal


21.1



1.0



22.1Total waste and service revenues


38.3



32.0



70.3Electricity and steam sales


36.7



22.1



58.8Other operating revenues


(3.3
)






(3.3
)Total operating revenues

$
71.7


$
54.1


$
125.8  50




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##### Table of Contents



(A)
    This column represents the results of operations for the year
    ended December 31, 2008 for businesses acquired after
    December 31, 2007, plus the results of operations for the
    nine months ended September 30, 2008 for businesses
    acquired during the quarter ended September 30, 2007, plus
    results of operations for the six months ended June 30,
    2008 for businesses acquired during the quarter ended
    June 30, 2007, plus results of operations for the three
    months ended March 31, 2008 for businesses acquired during
    the quarter ended March 31, 2007.  
    Revenues from Service Fee arrangements for existing business
    increased primarily due to contractual escalations, partially
    offset by lower revenues earned explicitly to service project
    debt of $1.4 million.
    Revenues from Tip Fee arrangements for existing business
    increased due to increased waste volume handled in part due to
    the impact of a fire in 2007 at our SEMASS energy-from-waste
    facility, partially offset by slightly lower pricing.
    Recycled metal revenues for existing business increased
    primarily due to higher pricing on average for the year. In
    addition, recovered metal volume increased due to the
    installation of new metal recovery systems, as well as due to
    enhancements made to existing systems.
    Electricity and steam sales for existing business increased
    primarily due to higher energy rates, and increased production
    primarily resulting from capital improvements to increase
    productivity and improve environmental performance at the
    biomass facilities.    For theQuarters EndedTotal Recycled Metal Revenues

2008


2007March 31,

$
11.4


$
7.0June 30,


19.0



7.5September 30,


17.3



7.9December 31,


5.9



9.1Total for the Year Ended December 31,

$
53.6


$
31.5   
    Other operating revenues for existing business decreased
    primarily due to the timing of construction activity.  Operating
    Expenses
    Domestic SegmentOperating Expense VariancesExisting


NewBusiness


Business (A)


TotalTotal plant operating expenses

$
36.8


$
52.4


$
89.2     (A)
    This column represents the results of operations for the year
    ended December 31, 2008 for businesses acquired after
    December 31, 2007, plus the results of operations for the
    nine months ended September 30, 2008 for businesses
    acquired during the quarter ended September 30, 2007, plus
    results of operations for the six months ended June 30,
    2008 for businesses acquired during the quarter ended
    June 30, 2007, plus results of operations for the three
    months ended March 31, 2008 for businesses acquired during
    the quarter ended March 31, 2007.       51




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##### Table of Contents



Insurance Recoveries Recorded


Cash Proceeds ReceivedFor the Years Ended December 31,2008


2007


2008


2007Repair and reconstruction costs (Insurance recoveries, net of
    write-down of assets)

$
8.3


$
17.3


$
16.2


$
9.4Clean-up
    costs (reduction to Plant operating expenses)

$



$
2.7


$



$
2.7Business interruption losses (reduction to Plant operating
    expenses)

$
5.2


$
2.0


$
7.2


$
     International
    Business Results of
    Operations
    Comparison of Results for the Year Ended December 31, 2008
    vs. Results for the Year Ended December 31,
    2007
    For the Years Ended


IncreaseDecember 31,


(Decrease)2008


2007


2008 vs 2007Waste and service revenues

$
3,990


$
4,144


$
(154
)Electricity and steam sales


275,976



173,073



102,903Total operating revenues


279,966



177,217



102,749Plant operating expenses


245,826



136,919



108,907Depreciation and amortization expense


8,751



8,998



(247
)Net interest expense on project debt


5,918



6,381



(463
)General and administrative expenses


18,684



8,584



10,100Other operating income


(2,274
)


(3,848
)


(1,574
)Total operating expenses


276,905



157,034



119,871Operating income

$
3,061


$
20,183



(17,122
)        52




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##### Table of Contents



RESULTS
    OF OPERATIONS  Year Ended December 31, 2007 vs.
    Year Ended December 31, 2006    For the Years Ended


IncreaseDecember 31,


(Decrease)2007


2006


2007 vs 2006CONSOLIDATED RESULTS OF OPERATIONS:Total operating revenues

$
1,433,087


$
1,268,536


$
164,551Total operating expenses


1,196,477



1,041,776



154,701Operating income


236,610



226,760



9,850OTHER INCOME (EXPENSE):Investment income


10,578



11,770



(1,192
)Interest expense


(67,104
)


(109,507
)


(42,403
)Loss on extinguishment of debt


(32,071
)


(6,795
)


25,276Total other expenses


(88,597
)


(104,532
)


(15,935
)Income before income tax expense, minority interests and equity
    in net income from unconsolidated investments


148,013



122,228



25,785Income tax expense


(31,040
)


(38,465
)


(7,425
)Minority interests


(8,656
)


(6,610
)


2,046Equity in net income from unconsolidated investments


22,196



28,636



(6,440
)NET INCOME

$
130,513


$
105,789



24,724Weighted Average Common Shares Outstanding:Basic


152,653



145,663



6,990Diluted


153,997



147,030



6,967EARNINGS PER SHARE:Basic

$
0.85


$
0.73


$
0.12Diluted

$
0.85


$
0.72


$
0.13     Consolidated
    Results of
    Operations
    Comparison of Results for the Year Ended December 31, 2007
    vs. Results for the Year Ended December 31,
    2006
    
    contribution from new businesses acquired,
    increased construction revenues relating to expansion of our
    Hillsborough County facility,
    higher waste and service revenues at our existing
    energy-from-waste facilities, and
    increased demand from the electricity offtaker at our Indian
    facilities and resulting higher electricity generation.    
    operating costs of new businesses acquired,
    increased construction expenses relating to the expansion of our
    Hillsborough County facility,
    increased plant operating expenses due to normal escalations in
    costs, such as wages, materials, and plant maintenance,
    expenses incurred as a result of a fire at our SEMASS
    energy-from-waste facility on March 31, 2007, and
    increased plant operating expenses at our Indian facilities
    primarily due to increased demand from the electricity offtaker
    and resulting higher generation. 53




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##### Table of Contents




    Quezon recorded a cumulative deferred income tax benefit in 2006
    of $31.7 million, of which $7.0 million relates to our
    equity share in Quezon. The realization of this deferred tax
    benefit is subject to fluctuations in the value of the
    Philippine peso versus the U.S. dollar. During the year
    ended December 31, 2007, we reduced the cumulative deferred
    income tax benefit by approximately $4.3 million, as a
    result of the strengthening of the Philippine peso versus the
    U.S. dollar;
    A decrease in equity in net income from unconsolidated
    investments for the year ended December 31, 2007 of
    approximately $4.1 million due to increased tax expense for
    Quezon related to the conclusion of a six-year income tax
    holiday in May 2006;
    Quezon recorded a gain in 2007 resulting from a settlement with
    Manila Electric Company (Meralco), the largest
    electric distribution company in the Philippines, related to
    various issues which had been pending for several years,
    including certain amendments to the contract to modify certain
    commercial terms and to resolve issues relating to the
    projects performance during its first year of operation.
    The settlement primarily includes payment by Meralco to Quezon
    of approximately $8.5 million of prior uncollected
    receivables, of which $1.9 million relates to our equity
    share in Quezon.     54




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##### Table of Contents



Domestic
    Business Results of
    Operations
    Comparison of Results for the Year Ended December 31, 2007
    vs. Results for the Year Ended December 31,
    2006
    For the Years Ended December 31,


Increase (Decrease)2007


2006


2007 vs 2006Waste and service revenues

$
860,252


$
813,260


$
46,992Electricity and steam sales


325,804



301,339



24,465Other operating revenues


59,561



3,328



56,233Total operating revenues


1,245,617



1,117,927



127,690Plant operating expenses


664,641



612,202



52,439Depreciation and amortization expense


187,875



184,921



2,954Net interest expense on project debt


48,198



53,270



(5,072
)General and administrative expenses


71,022



66,439



4,583Other operating expense (income)


53,789



(5,388
)


59,177Total operating expenses


1,025,525



911,444



114,081Operating income

$
220,092


$
206,483



13,609   Operating
    Revenues
    Domestic SegmentOperating Revenue VariancesExisting


NewBusiness


Business (A)


TotalWaste and service revenuesService fee

$
5.2


$
14.9


$
20.1Tip fee


4.7



13.9



18.6Recycled metal


8.2



0.1



8.3Total waste and service revenues


18.1



28.9



47.0Electricity and steam sales


9.7



14.8



24.5Other operating revenues


56.2







56.2Total operating revenues

$
84.0


$
43.7


$
127.7     (A)
    This column represents the results of operations for the year
    ended December 31, 2007 for businesses acquired after
    December 31, 2006.  
    Revenues from Service Fee arrangements for existing business
    increased primarily due to contractual escalations, partially
    offset by lower revenues earned explicitly to service debt of
    $4.8 million.
    Revenues from Tip Fee arrangements for existing business
    increased primarily due to pricing escalations, partially offset
    by a decrease in waste volume and reduced revenues of
    $4.1 million at our SEMASS facility following its fire on
    March 31, 2007.
    Recycled metal revenues for existing business increased
    primarily due to higher pricing for ferrous and non-ferrous
    metal.
    Electricity and steam sales for existing business increased
    primarily due to higher energy rates. This increase was
    partially offset by energy rate settlements of $3.7 million
    related to prior years, and a decrease in revenues of
    $1.9 million due to lower waste volume resulting from the
    temporary suspension of operations at our SEMASS facility
    following its fire on March 31, 2007.
    Other operating revenues for existing business increased
    primarily due to construction revenues related to the expansion
    for the Hillsborough County facility. 55




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##### Table of Contents



Operating
    Expenses
    Domestic SegmentOperating Expense VariancesExisting


NewBusiness


Business (A)


TotalTotal plant operating expenses

$
10.7


$
41.7


$
52.4     (A)
    This column represents the results of operations for the year
    ended December 31, 2007 for businesses acquired after
    December 31, 2006.  clean-up
        clean-up
   56




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##### Table of Contents



International
    Business Results of
    Operations
    Comparison of Results for the Year Ended December 31, 2007
    vs. Results for the Year Ended December 31, 2006
    For the Years Ended


IncreaseDecember 31,


(Decrease)2007


2006


2007 vs 2006Waste and service revenues

$
4,144


$
4,373


$
(229
)Electricity and steam sales


173,073



132,495



40,578Total operating revenues


177,217



136,868



40,349Plant operating expenses


136,919



99,954



36,965Depreciation and amortization expense


8,998



8,193



805Net interest expense on project debt


6,381



6,940



(559
)General and administrative expenses


8,584



4,394



4,190Other operating income


(3,848
)


(2,452
)


1,396Total operating expenses


157,034



117,029



40,005Operating income

$
20,183


$
19,839



344            LIQUIDITY
    AND CAPITAL RESOURCES       57




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##### Table of Contents



2007
    Recapitalization
    
    the refinancing of our previously existing credit facilities
    with the new credit facilities, comprised of a $300 million
    revolving credit facility (the Revolving Loan
    Facility), a $320 million funded letter of credit
    facility (the Funded L/C Facility) and a
    $650 million term loan (collectively referred to as the
    Credit Facilities);
    an underwritten public offering of 6.118 million shares of
    our common stock, from which we received proceeds of
    approximately $136.6 million, net of underwriting discounts
    and commissions;
    an underwritten public offering of approximately
    $373.8 million aggregate principal amount of
    1.00% Senior Convertible Debentures due 2027 (the
    Debentures), from which we received proceeds of
    approximately $364.4 million, net of underwriting discounts
    and commissions; and
    the repayment, by means of a tender offer and redemptions, of
    approximately $611.9 million in aggregate principal amount
    of outstanding notes previously issued by our intermediate
    subsidiaries.     58




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##### Table of Contents



Credit
    Agreement Financial Covenants
      
    maximum Covanta Energy leverage ratio of 4.00 to 1.00 for the
    four quarter period ended December 31, 2008, which measures
    Covanta Energys principal amount of consolidated debt less
    certain restricted funds dedicated to repayment of project debt
    principal and construction costs (Consolidated Adjusted
    Debt) to its adjusted earnings before interest, taxes,
    depreciation and amortization, as calculated under the Credit
    Facilities (Adjusted EBITDA). The definition of
    Adjusted EBITDA in the Credit Facilities excludes certain
    non-cash charges. The maximum Covanta Energy leverage ratio
    allowed under the Credit Facilities adjusts in future periods as
    follows:  
    4.00 to 1.00 for each of the four quarter periods ended
    March 31, June 30 and September 30, 2009;
    3.75 to 1.00 for each of the four quarter periods ended
    December 31, 2009, March 31, June 30 and
    September 30, 2010;
    3.50 to 1.00 for each four quarter period thereafter;  
    maximum Covanta Energy capital expenditures incurred to maintain
    existing operating businesses of $100 million per fiscal
    year, subject to adjustment due to an acquisition by Covanta
    Energy; and
    minimum Covanta Energy interest coverage ratio of 3.00 to 1.00,
    which measures Covanta Energys Adjusted EBITDA to its
    consolidated interest expense plus certain interest expense of
    ours, to the extent paid by Covanta Energy.  Sources
    and Uses of Cash Flow
  For the Years Ended December 31,


Increase (Decrease)2008


2007


2006


2008 vs 2007


2007 vs 2006(In thousands)Net cash provided by operating activities

$
402,607


$
363,591


$
318,989


$
39,016


$
44,602Net cash used in investing activities


(189,308
)


(179,910
)


(66,904
)


9,398



113,006Net cash used in financing activities


(170,242
)


(268,335
)


(147,420
)


(98,093
)


120,915Effect of exchange rate changes on cash and cash equivalents


(70
)


618



221



(688
)


397Net increase (decrease) in cash and cash equivalents

$
42,987


$
(84,036
)

$
104,886



127,023



(188,922
)     Year
    Ended December 31, 2008 vs. Year Ended December 31,
    2007
    
    $29.8 million from a combination of improved operating
    performance and lower net interest expense; and
    an increase in non-property insurance proceeds of
    $9.2 million (including $7.2 million of business
    interruption recoveries related to the SEMASS energy-from-waste
    facility). 59




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##### Table of Contents




    $16.7 million to acquire land use rights in the United
    Kingdom and United States in connection with development
    activities;
    an increase of $18.0 million related to investments in
    fixed maturities at our insurance subsidiary, partially offset
    by an increase of $5.2 million in proceeds from the sale of
    investments in fixed maturities at our insurance subsidiary;
    $7.3 million of equity investments, of which
    $17.1 million related to the Chengdu project, offset by the
    $10.3 million equity investment in Sanfeng during the
    comparative period;
    an increase in capital expenditures of $2.2 million;
    $8.2 million related to a loan issued for the Harrisburg
    energy-from-waste facility;
    $6.1 million of cash outflows comprised primarily of
    business development activities.    Year
    Ended December 31, 2007 vs. Year Ended December 31,
    2006
      
    higher purchases of property, plant and equipment of
    $31.4 million, principally comprised of: 
    $18.1 million relating to rebuilding at the SEMASS facility
    following the fire; and
    $12.1 million relating to our Central Valley biomass
    facilities and our Holliston transfer station businesses
    acquired during 2007; 
    the acquisition of businesses, net of cash acquired, of
    $110.5 million;
    an equity investment in Sanfeng for $10.3 million;
    partially offset by property insurance proceeds of
    $9.4 million related to the fire at our SEMASS
    energy-from-waste facility and the acquisition of a
    non-controlling interest in a subsidiary during 2006 of
    $27.5 million.   60




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##### Table of Contents



Project
    Debt
  Domestic
    Project Debt
  Other Commitments.
    Covanta Niagara, L.P. Series 2001 Bonds

$
165,010Covanta Southeastern Connecticut Company Corporate Credit Bonds


43,500Covanta Hempstead Company Corporate Credit Bonds


42,670Total

$
251,180   International
    Project Debt
    Investments
  and/or
   61




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##### Table of Contents



Amortized Cost


Fair ValueInvestments by grade:Fixed maturities:U.S. Government/Agency

$
17,897


$
18,207Mortgage-backed


4,183



4,184Corporate (AAA to A)


4,540



4,346Total fixed maturities


26,620



26,737Equity securities


760



792Total

$
27,380


$
27,529   Capital
    Requirements
    Payments Due by Period2010 and


2012 and


2014 andTotal


2009


2011


2013


BeyondDomestic project debt (Note 7)

$
1,006,087


$
155,597


$
265,324


$
228,972


$
356,194International project debt (Note 7)


52,036



34,550



17,486







Total project debt (Note 7)


1,058,123



190,147



282,810



228,972



356,194Term Loan Facility (Note 6)


638,625



6,500



13,000



13,000



606,125Debentures(1)


373,750















373,750Other long-term debt


512



422



90







Total debt obligations(2)


2,071,010



197,069



295,900



241,972



1,336,069Less: Non-recourse debt(3)


(1,058,635
)


(190,569
)


(282,900
)


(228,972
)


(356,194
)Total recourse debt

$
1,012,375


$
6,500


$
13,000


$
13,000


$
979,875Operating leases


366,032



57,580



89,950



60,541



157,961Less: Non-recourse rental payments


(213,722
)


(23,065
)


(46,933
)


(41,616
)


(102,108
)Total recourse rental payments

$
152,310


$
34,515


$
43,017


$
18,925


$
55,853Interest payments(4)


458,686



82,002



128,632



101,266



146,786Less: Non-recourse interest payments


(298,030
)


(61,586
)


(88,311
)


(61,628
)


(86,505
)Total recourse interest payments

$
160,656


$
20,416


$
40,321


$
39,638


$
60,281Retirement plan obligations(5)

$
30,830


$
4,920


$
9,970


$
10,400


$
5,540FIN 48 tax obligations(6)

$
140,811


$
22,721


$
7,075


$
3,747


$
107,268Total obligations

$
1,496,982


$
89,072


$
113,383


$
85,710


$
1,208,817     (1)
    
    The Debentures bear interest at a rate of 1.00% per year,
    payable semi-annually in arrears, on February 1 and August 1 of
    each year, commencing on August 1, 2007 and will mature on
    February 1, 2027. In addition, beginning with the six-month
    interest period commencing February 1, 2012, we may be
    required to pay contingent interest on the Debentures,
    calculated with reference to the trading price of the
    Debentures. As of December 31, 2008, the closing price of
    our common stock did not exceed the specified conversion price,
    and therefore, for purposes of this Capital Requirements chart,
    we have assumed no conversions or redemptions of the Debentures
    and no contingent interest related to the Debentures. For
    information detailing the contingent interest, conversion or
    redemption features of the Debentures, see Note 6.
    Long-Term Debt of the Notes.(2)
    
    Excludes $20.2 million of unamortized debt premium.(3)
    
    Payment obligations for the project debt associated with owned
    energy-from-waste facilities are limited recourse to the
    operating subsidiary and non-recourse to us, subject to
    operating performance guarantees and commitments. 62




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##### Table of Contents



(4)
    
    Interest payments on the Term Loan Facility and letter of credit
    fees are estimated based on current LIBOR rates and are
    estimated assuming contractual principal repayments.(5)
    
    Retirement plan obligations are based on actuarial estimates for
    the pension plan obligations and post-retirement plan
    obligations as of December 31, 2008.(6)
    
    Financial Accounting Standards Board Interpretation No. 48,
    Accounting for Uncertainty in Income Taxes, an
    interpretation of FASB Statement No. 109,
    (FIN 48) obligations are based upon the
    expected date of settlement taking into account all of our
    administrative rights including possible litigation.  Other
    Commitments
    Commitments Expiring by PeriodLess Than


More ThanTotal


One Year


One YearLetters of credit

$
300,415


$
46,111


$
254,304Surety bonds


64,086







64,086Total other commitments  net

$
364,501


$
46,111


$
318,390           
    holders may require us to repurchase their Debentures on
    February 1, 2012, February 1, 2017 and
    February 1, 2022;
    holders may require us to repurchase their Debentures, if a
    fundamental change occurs; and
    holders may exercise their conversion rights upon the occurrence
    of certain events, which would require us to pay the conversion
    settlement amount in cash
    and/or our
    common stock.       63




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##### Table of Contents



Item 1A. Risk Factors  We have provided
    guarantees and financial support in connection with our
    projects.
  Insurance
    Coverage
    Off-Balance
    Sheet Arrangements
       64




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##### Table of Contents



Other Commitments,
    Discussion
    of Critical Accounting Policies
    Stock-Based
    Compensation
        Purchase
    Accounting
   65




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##### Table of Contents



Depreciation
    and Amortization
    Goodwill
    and Intangible Assets
      Net
    Operating Loss Carryforwards  Deferred Tax
    Assets
       66




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##### Table of Contents



Loss
    Contingencies
    Financial
    Instruments
    FAS 157-2,
          Revenue
    Recognition
   67




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##### Table of Contents



Pensions
      
    Based on this evaluation for the year ended December 31,
    2007, we increased the discount rate assumption for benefit
    obligations from 5.75% as of December 31, 2006 to 6.50% as
    of December 31, 2007. We recorded a pension plan liability
    equal to the amount by which the present value of the projected
    benefit obligations (using a discount rate of 6.50%) exceeded
    the fair value of pension assets as of December 31, 2007.
    We recognized a net actuarial gain of $14.5 million,
    $9.4 million net of deferred tax, in AOCI during the year
    ended December 31, 2007.
    Based on this evaluation for the year ended December 31,
    2008, we decreased the discount rate assumption for benefit
    obligations from 6.50% as of December 31, 2007 to 6.25% as
    of December 31, 2008. We recorded a pension plan liability
    equal to the amount by which the present value of the projected
    benefit obligations (using a discount rate of 6.25%) exceeded
    the fair value of pension assets as of December 31, 2008.
    We recognized a net actuarial loss of $20.0 million,
    $13.2 million net of deferred tax, in AOCI during the year
    ended December 31, 2008.    Unpaid
    Losses and Loss Adjustment Expenses
       68




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##### Table of Contents



Recent
    Accounting Pronouncements
    Related-Party
    Transactions
  Employment
    Arrangements
  Item 11. Executive Compensation Form 10-K.
  Affiliate
    Agreements
        Item 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Commodity
    Price Risk and Contract Revenue Risk
  Item 7.
    Managements Discussion and Analysis of Financial Condition
    and Results of Operation  Overview 
    Contract Structures.
 69




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##### Table of Contents



Interest
    Rate Risk
     70




---



##### Table of Contents



Contingent
    Interest
  Item 7.
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Liquidity and Capital
    Resources  2007 Recapitalization
  Foreign
    Currency Exchange Rate Risk
          Risk
    Related to the Investment Portfolio
   71




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##### Table of Contents



Fixed
    Maturities
        Equity
    Securities
   72




---



##### 



Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA   
 PageReport of Independent Public Accounting Firm


74Consolidated Statements of Income for the Years
    Ended December 31, 2008, 2007 and 2006


75Consolidated Balance Sheets as of
    December 31, 2008 and 2007


76Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2008, 2007 and 2006


77Statements of Stockholders Equity for the
    Years Ended December 31, 2008, 2007 and 2006


78Notes to Consolidated Financial Statements


79Note 1.  Organization and Summary
    of Significant Accounting Policies


79Note 2.  Recent Accounting
    Pronouncements


86Note 3.  Acquisitions, Business
    Development and Dispositions


87Note 4.  Earnings Per Share and
    Stockholders Equity


91Note 5.  Financial Information by
    Business Segments


93Note 6.  Long-Term Debt


94Note 7.  Project Debt


99Note 8.  Equity Method
    Investments


100Note 9.  Income Taxes


101Note 10. Amortization of Waste, Service
    and Energy Contracts


106Note 11. Other Intangible Assets and
    Goodwill


107Note 12. Supplementary Financial
    Information


108Note 13. Investments


110Note 14. Property, Plant and Equipment,
    net


113Note 15. Leases


113Note 16. Employee Benefit Plans


114Note 17. Stock-Based Award Plans


118Note 18. Accumulated Other
    Comprehensive (Loss) Income


122Note 19. Financial Instruments


122Note 20. Related-Party Transactions


124Note 21. Commitments and
    Contingencies


124Note 22. Quarterly Data (Unaudited)


127Financial Statement Schedule:Schedule II Valuation and Qualifying
    Accounts


128   73




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm              
    74




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    CONSOLIDATED STATEMENTS OF INCOME  For the Years Ended December 31,2008


2007


2006(In thousands, except per share amounts)OPERATING REVENUES:Waste and service revenues

$
934,527


$
864,396


$
817,633Electricity and steam sales


660,616



498,877



433,834Other operating revenues


69,110



69,814



17,069Total operating revenues


1,664,253



1,433,087



1,268,536OPERATING EXPENSES:Plant operating expenses


999,674



801,560



712,156Depreciation and amortization expense


199,488



196,970



193,217Net interest expense on project debt


53,734



54,579



60,210General and administrative expenses


97,016



82,729



73,599Insurance recoveries, net of write-down of assets


(8,325
)






Other operating expenses


66,701



60,639



2,594Total operating expenses


1,408,288



1,196,477



1,041,776Operating income


255,965



236,610



226,760Other income (expense):Investment income


5,717



10,578



11,770Interest expense


(46,804
)


(67,104
)


(109,507
)Loss on extinguishment of debt






(32,071
)


(6,795
)Total other expenses


(41,087
)


(88,597
)


(104,532
)Income before income tax expense, minority interests and equity
    in net income from unconsolidated investments


214,878



148,013



122,228Income tax expense


(92,227
)


(31,040
)


(38,465
)Minority interests


(6,961
)


(8,656
)


(6,610
)Equity in net income from unconsolidated investments


23,583



22,196



28,636NET INCOME

$
139,273


$
130,513


$
105,789Weighted Average Common Shares Outstanding:Basic


153,345



152,653



145,663Diluted


154,732



153,997



147,030Earnings Per Share:Basic

$
0.91


$
0.85


$
0.73Diluted

$
0.90


$
0.85


$
0.72    75




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##### Table of Contents



COVANTA
    HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS  As of December 31,2008


2007(In thousands, except per share amounts)ASSETSCurrent:Cash and cash equivalents

$
192,393


$
149,406Marketable securities available for sale


300



2,495Restricted funds held in trust


175,093



187,951Receivables (less allowances of $3,437 and $4,353)


243,791



252,114Unbilled service receivables


49,468



59,232Deferred income taxes






29,873Prepaid expenses and other current assets


123,214



113,927Total Current Assets


784,259



794,998Property, plant and equipment, net


2,530,035



2,620,507Investments in fixed maturities at market (cost: $26,620 and
    $26,338, respectively)


26,737



26,260Restricted funds held in trust


149,818



191,913Unbilled service receivables


44,298



56,685Waste, service and energy contracts, net


223,397



268,353Other intangible assets, net


83,331



88,954Goodwill


195,617



127,027Investments in investees and joint ventures


102,953



81,248Other assets


139,544



112,554Total Assets

$
4,279,989


$
4,368,499LIABILITIES AND STOCKHOLDERS EQUITYCurrent:Current portion of long-term debt

$
6,922


$
6,898Current portion of project debt


198,034



195,625Accounts payable


24,470



29,916Deferred revenue


15,202



25,114Accrued expenses and other current liabilities


215,046



234,000Total Current Liabilities


459,674



491,553Long-term debt


1,005,965



1,012,534Project debt


880,336



1,084,650Deferred income taxes


466,468



440,723Waste and service contracts


114,532



130,464Other liabilities


165,881



141,740Total Liabilities


3,092,856



3,301,664Commitments and Contingencies (Note 21)Minority Interests


35,014



40,773Stockholders Equity:Preferred stock ($0.10 par value; authorized
    10,000 shares; none issued and outstanding)






Common stock ($0.10 par value; authorized
    250,000 shares; issued 154,797 and 154,281 shares;
    outstanding 154,280 and 153,922 shares)


15,480



15,428Additional paid-in capital


776,544



765,287Accumulated other comprehensive (loss) income


(8,205
)


16,304Accumulated earnings


368,352



229,079Treasury stock, at par


(52
)


(36
)Total Stockholders Equity


1,152,119



1,026,062Total Liabilities and Stockholders Equity

$
4,279,989


$
4,368,499    76




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    CONSOLIDATED STATEMENTS OF CASH FLOWS  For the Years Ended December 31,2008


2007


2006(In thousands)OPERATING ACTIVITIES:Net income

$
139,273


$
130,513


$
105,789Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization expense


199,488



196,970



193,217Revenue contract levelization


(586
)


(555
)


3,419Amortization of long-term debt deferred financing costs


3,684



3,841



3,858Amortization of debt premium and discount


(10,707
)


(14,857
)


(22,506
)Loss on extinguishment of debt






32,071



6,795Provision for doubtful accounts


1,839



1,184



2,251Stock-based compensation expense


14,750



13,448



6,887Equity in net income from unconsolidated investments


(23,583
)


(22,196
)


(28,636
)Dividends from unconsolidated investments


19,459



24,250



19,375Minority interests


6,961



8,656



6,610Deferred income taxes


70,826



5,869



20,908Other, net


3,809



(1,801
)


6,872Change in restricted funds held in trust


29,481



5,493



7,790Change in operating assets and liabilities, net of effects of
    acquisitions:Receivables


4,138



(36,084
)


(8,577
)Unbilled service receivables


14,020



19,403



17,294Accounts payable and accrued expenses


(38,450
)


22,880



2,351Unpaid losses and loss adjustment expenses


(3,235
)


(4,984
)


(8,848
)Other, net


(28,560
)


(20,510
)


(15,860
)Net cash provided by operating activities


402,607



363,591



318,989INVESTING ACTIVITIES:Acquisition of businesses, net of cash acquired


(73,393
)


(110,465
)


Proceeds from the sale of investment securities


20,295



15,057



10,615Purchase of investment securities


(18,577
)


(622
)


(774
)Acquisition of non-controlling interest in subsidiary










(27,500
)Purchase of equity interest


(18,503
)


(11,199
)


Purchase of property, plant and equipment


(87,920
)


(85,748
)


(54,267
)Property insurance proceeds


16,215



9,441



Acquisition of land use rights


(16,727
)






Loans issued to client community to fund certain facility
    improvements


(8,233
)






Other, net


(2,465
)


3,626



5,022Net cash used in investing activities


(189,308
)


(179,910
)


(66,904
)FINANCING ACTIVITIES:Proceeds from the issuance of common stock, net






135,757



Proceeds from rights offerings, net










20,498Proceeds from the exercise of options for common stock, net


262



812



1,126Proceeds from borrowings on long-term debt






949,907



97,619Financings of insurance premiums, net


1,381



7,927



Proceeds from borrowings on project debt


8,278



3,506



6,868Proceeds from borrowings on revolving credit facility






30,000



Principal payments on long-term debt


(6,877
)


(1,181,130
)


(140,638
)Principal payments on project debt


(187,800
)


(164,167
)


(151,095
)Payments of borrowings on revolving credit facility






(30,000
)


Payments of long-term debt deferred financing costs






(18,324
)


(2,129
)Payments of tender premiums on debt extinguishment






(33,016
)


(1,952
)Increase in holding company restricted funds






6,660



Decrease in restricted funds held in trust


21,575



31,432



31,583Distributions to minority partners


(7,061
)


(7,699
)


(9,263
)Other, net










(37
)Net cash used in financing activities


(170,242
)


(268,335
)


(147,420
)Effect of exchange rate changes on cash and cash equivalents


(70
)


618



221Net increase (decrease) in cash and cash equivalents


42,987



(84,036
)


104,886Cash and cash equivalents at beginning of period


149,406



233,442



128,556Cash and cash equivalents at end of period

$
192,393


$
149,406


$
233,442Cash Paid for Interest and Income Taxes:Interest

$
114,207


$
146,677


$
205,807Income taxes

$
22,979


$
24,122


$
17,398    77




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY


AccumulatedAdditional





Other


AccumulatedCommon Stock


Paid-In


Unearned


Comprehensive


Earnings


Treasury StockShares


Amount


Compensation


Compensation


(Loss) Income


(Deficit)


Shares


Amount


Total(In thousands)Balance as of December 31, 2005


141,246


$
14,125


$
594,186


$
(4,583
)

$
535


$
(5,014
)


80


$
(8
)

$
599,241Reclass of unearned compensation upon adoption of SFAS 123R










(4,583
)


4,583



















Shares issued in rights offering


5,697



570



19,928























20,498Stock-based compensation expense










6,887























6,887Tax benefit related to exercise of stock options and vesting of
    restricted stock










2,242























2,242Shares forfeited for terminated employees










(30
)














77



(8
)


(38
)Exercise of options to purchase common stock


178



18



1,108























1,126Shares issued in non-vested stock award


536



53



(53
)






















Comprehensive income, net of income taxes:Net income






















105,789











105,789Foreign currency translation


















986















986Minimum pension liability adjustment


















100















100Net unrealized gain on available-for-sale securities


















559















559Net unrealized gain on derivative instruments


















112















112Total comprehensive income


















1,757



105,789











107,546Adjustment for unrecognized net gain uponadoption of SFAS 158


















1,650















1,650Balance as of December 31, 2006


147,657



14,766



619,685







3,942



100,775



157



(16
)


739,152Shares issued in equity offering, net of costs


6,118



612



135,143























135,755Stock-based compensation expense










13,448























13,448Effect of FIN 48 adoption






















(2,209
)










(2,209
)Tax benefit related to exercise of stock options and vesting of
    restricted stock










200























200Shares forfeited for terminated employees










3















27



(3
)


Shares repurchased for tax withholdings for vested stock awards










(3,954
)














175



(17
)


(3,971
)Exercise of options to purchase common stock


113



11



801























812Shares issued in non-vested stock award


393



39



(39
)






















Comprehensive income, net of income taxes:Net income






















130,513











130,513Foreign currency translation


















4,388















4,388SFAS 158 unrecognized net gain


















9,446















9,446Minimum pension liability adjustment


















(59
)














(59
)Net unrealized gain on available-for-sale securities


















712















712Net unrealized gain on derivative instruments


















(2,125
)














(2,125
)Total comprehensive income


















12,362



130,513











142,875Balance as of December 31, 2007


154,281



15,428



765,287







16,304



229,079



359



(36
)


1,026,062Stock-based compensation expense










14,750























14,750Shares forfeited for terminated employees










2















21



(2
)


Shares repurchased for tax withholdings for vested stock awards










(3,705
)














137



(14
)


(3,719
)Exercise of options to purchase common stock


22



2



260























262Shares issued in non-vested stock award


494



50



(50
)






















Comprehensive income, net of income taxes:Net income






















139,273











139,273Foreign currency translation


















(10,481
)














(10,481
)SFAS 158 unrecognized net loss


















(13,218
)














(13,218
)Minimum pension liability adjustment


















(403
)














(403
)Net unrealized loss on available-for-sale securities


















(407
)














(407
)Total comprehensive loss


















(24,509
)


139,273











114,764Balance as of December 31, 2008


154,797


$
15,480


$
776,544


$



$
(8,205
)

$
368,352



517


$
(52
)

$
1,152,119    78




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##### Table of Contents





COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Organization
    and Summary of Significant Accounting Policies    Organization
    and/or
  Summary
    of Significant Accounting Policies
  Principles
    of Consolidation
    Equity
    Method of Investments
    Revenues
  Waste and
    Service Revenues
       79




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Electricity
    and Steam Sales
  No. 91-6, No. 96-17,
  Construction
    Revenues
    Pass
    Through Costs
    Income
    Taxes
   80




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Stock-Based
    Compensation
    Cash and
    Cash Equivalents
    Investments
      available-for-sale
    
    the significance of the decline in fair value compared to the
    cost basis;
    the time period during which there has been a significant
    decline in fair value; 81




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    whether the unrealized loss is credit-driven or a result of
    changes in market interest rates;
    a fundamental analysis of the business prospects and financial
    condition of the issuer; and
    our ability and intent to hold the investment for a period of
    time sufficient to allow for any anticipated recovery in fair
    value.    Restricted
    Funds Held in Trust
    As of December 31,2008


2007Current


Noncurrent


Current


NoncurrentDebt service funds

$
103,371


$
97,761


$
111,193


$
142,098Revenue funds


25,105







22,253



Other funds


46,617



52,057



54,505



49,815Total

$
175,093


$
149,818


$
187,951


$
191,913   Restricted
    Funds for Emergence Costs
    Deferred
    Financing Costs
    Deferred
    Revenue
    As of December 31,2008


2007Current


Noncurrent


Current


NoncurrentAdvance billings to municipalities

$
8,333


$



$
11,610


$
Unearned insurance premiums


1,587







896



Other


5,282



4,345



12,608



4,931Total

$
15,202


$
4,345


$
25,114


$
4,931    82




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property,
    Plant and Equipment
    Asset
    Retirement Obligations
    As of December 31,2008


2007Beginning of period asset retirement obligation

$
25,520


$
26,517Accretion expense


1,998



2,091Deductions(1)


(1,565
)


(5,290
)Additions(2)


1,576



2,202End of period asset retirement obligation

$
27,529


$
25,520Less: current portion


(1,618
)


(964
)Asset retirement obligation

$
25,911


$
24,556     (1)
    
    Deductions in 2008 and 2007 related to expenditures and
    settlements of the asset retirement obligation liability and net
    revisions based on current estimates of the liability and
    revised expected cash flows and life of the liability.(2)
    
    Additions in 2008 related primarily to purchase price
    allocations for asset retirement obligations for the ash
    landfill acquired in Massachusetts in 2008, offset by purchase
    price allocation adjustments for the two biomass energy
    facilities acquired in California in 2007. Additions in 2007
    related primarily to purchase price allocations for asset
    retirement obligations for the two biomass energy facilities
    acquired in California in 2007. See Note 3. Acquisitions,
    Business Development and Dispositions.  Waste,
    Service and Energy Contracts
   83




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Impairment
    of Goodwill, Other Intangibles and Long-Lived Assets
      Accumulated
    Other Comprehensive Income
    Interest
    Rate Swap Agreements
   84




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Foreign
    Currency Translation
    Pension
    and Postretirement Benefit Obligations
    Unpaid
    Losses and Loss Adjustment Expenses
    As of December 31,2008


2007


2006Net unpaid losses and LAE at beginning of year

$
22,400


$
25,712


$
32,082Incurred, net, related to:Current year


7,272



6,398



7,579Prior years


1,818



1,492



297Total net incurred


9,090



7,890



7,876Paid, net, related to:Current year


(4,361
)


(3,905
)


(4,085
)Prior years


(6,982
)


(7,357
)


(10,221
)Total net paid


(11,343
)


(11,262
)


(14,306
)Plus: Increase in allowance for reinsurance recoverable on
    unpaid losses


60



60



60Net unpaid losses and LAE at end of year


20,207



22,400



25,712Plus: Reinsurance recoverable on unpaid losses


9,155



10,036



12,308Gross unpaid losses and LAE at end of year

$
29,362


$
32,436


$
38,020   Use of
    Estimates
   85




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reclassifications
      Note 2.
    Recent
    Accounting Pronouncements  No. EITF 03-6-1, EITF 03-6-1). Earnings per
    Share. EITF 03-6-1
  14-1, 14-1). 14-1 14-1,
  2007

2008

2009

2010

2011

2012-2027

TotalPre-tax increase in non-cash interest expense

$
5.2


$
6.1


$
6.5


$
7.0


$
7.6


$
213.9


$
246.3   No. 142-3, 142-3) 142-3 142-3
 86




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note 3.
    Acquisitions,
    Business Development and Dispositions      Acquisitions
    and Business Development
  Domestic
  Maine
    Biomass Energy Facilities
   87




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Wallingford,
    Connecticut Energy-from-Waste Facility
    Kent
    County, Michigan Energy-from-Waste Facility
    Pasco
    County, Florida Energy-from-Waste Facility
    Indianapolis
    Energy-from-Waste Facility
    Tulsa
    Energy-from-Waste Facility
    Peabody
    Landfill
    Alternative
    Energy Technology Development
    Harrisburg
    Energy-from-Waste Facility
   88




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Lee
    County Energy-from-Waste Facility
  energy-from-waste
  Pacific
    Ultrapower Chinese Station, California
    Massachusetts
    Energy-from-Waste Facilities and Transfer Stations
    Westchester
    Transfer Stations
    California
    Biomass Energy Facilities
    Holliston
    Transfer Station
    Hempstead
    Energy-from-Waste Facility
   89




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Hillsborough
    County Energy-from-Waste Facility
    Covanta
    Onondaga Limited Partnership
    International
  China
    Joint Ventures
        Dublin
    Joint Venture
  25-year
 90




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Dispositions
     Note 4.  Earnings
    Per Share and Stockholders Equity  Earnings
    Per Share
    For the Years Ended December 31,2008


2007


2006Net income

$
139,273


$
130,513


$
105,789Basic earnings per share:Weighted average basic common shares outstanding


153,345



152,653



145,663Basic earnings per share

$
0.91


$
0.85


$
0.73Diluted earnings per share:Weighted average basic common shares outstanding


153,345



152,653



145,663Dilutive effect of stock options


649



620



557Dilutive effect of restricted stock


738



724



402Dilutive effect of rights










408Dilutive effect of convertible debentures










Weighted average diluted common shares outstanding


154,732



153,997



147,030Diluted earnings per share

$
0.90


$
0.85


$
0.72Stock options excluded from the weighted average dilutive common
    shares outstanding because their inclusion would have been
    antidilutive


1,983



1,745



50Restricted stock awards excluded from the weighted average
    dilutive common shares outstanding because their inclusion would
    have been antidilutive










    91




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stockholders
    Equity
          As of December 31,2008Shares available for issuance under equity plans


9,907,333            92




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 5.
    Financial
    Information by Business Segments    Reportable SegmentsDomestic


International


All Other(1)


TotalYear Ended December 31, 2008:Operating revenues

$
1,371,431


$
279,966


$
12,856


$
1,664,253Depreciation and amortization


190,659



8,751



78



199,488Operating income (loss)


255,007



3,061



(2,103
)


255,965As of December 31, 2008:Total assets (includes goodwill of $195.6 million)

$
3,975,740


$
239,582


$
64,667


$
4,279,989Capital additions


85,770



2,082



68



87,920Year Ended December 31, 2007:Operating revenues

$
1,245,617


$
177,217


$
10,253


$
1,433,087Depreciation and amortization


187,875



8,998



97



196,970Operating income (loss)


220,092



20,183



(3,665
)


236,610As of December 31, 2007:Total assets (includes goodwill of $127.0 million)

$
4,007,621


$
257,481


$
103,397


$
4,368,499Capital additions


84,983



528



237



85,748Year Ended December 31, 2006:Operating revenues

$
1,117,927


$
136,868


$
13,741


$
1,268,536Depreciation and amortization


184,921



8,193



103



193,217Operating income


206,483



19,839



438



226,760As of December 31, 2006:Total assets (includes goodwill of $91.3 million)

$
4,097,310


$
216,518


$
123,992


$
4,437,820Capital additions


53,651



599



17



54,267     (1)
    
    All other is comprised of our insurance subsidiaries
    operations and the financial results of the holding company.    United States


India


Other International


TotalOperating Revenues:Year Ended December 31, 2008

$
1,384,287


$
259,923


$
20,043


$
1,664,253Year Ended December 31, 2007

$
1,255,870


$
157,405


$
19,812


$
1,433,087Year Ended December 31, 2006

$
1,131,667


$
108,150


$
28,719


$
1,268,536Total Assets:As of December 31, 2008

$
3,975,365


$
65,766


$
238,858


$
4,279,989As of December 31, 2007

$
4,079,552


$
91,710


$
197,237


$
4,368,499  93




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6.
    Long-Term
    Debt  Long-Term
    Debt
    As of December 31,2008


20071.00% Senior Convertible Debentures due 2027

$
373,750


$
373,750Term loan due 2014


638,625



645,125Other long-term debt


512



557Total


1,012,887



1,019,432Less: current portion


(6,922
)


(6,898
)Total long-term debt

$
1,005,965


$
1,012,534   Short-Term
    Liquidity
    Total



Outstanding LettersAvailable



of Credit as of

Available as ofUnder Facility

Maturing

December 31, 2008

December 31, 2008Revolving Loan Facility(1)

$
300,000



2013


$



$
300,000Funded L/C Facility

$
320,000



2014


$
292,144


$
27,856     (1)
    
    Up to $200 million of which may be utilized for letters of
    credit.    Credit
    Facilities
  2007 Recapitalization
  
    a $300 million revolving loan facility due 2013, which
    includes a $200 million sub-facility for the issuance of
    letters of credit (the Revolving Loan Facility);
    a $320 million funded letter of credit facility due 2014
    (the Funded L/C Facility); and
    a term loan facility, due 2014, in the initial amount of
    $650 million and of which $638.6 million was
    outstanding as of December 31, 2008 (the Term Loan
    Facility).  Amortization
    Terms
    2009


2010


2011


2012


2013


2014


TotalAnnual Remaining Amortization

$
6,500


$
6,500


$
6,500


$
6,500


$
6,500


$
606,125


$
638,625    94




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Interest
    and Fee Terms
        Borrowing Margin


Borrowing Marginfor Term Loans,


for Term Loans,Funded Letters of


Funded Letters ofCredit and


Credit andBorrowing Margin


Borrowing Margin


Credit-Linked


Credit-Linkedfor Revolving Loans


for Revolving Loans


Deposits


DepositsLeverage Ratio

(Eurodollar Loans)


(Base Rate Loans)


(Eurodollar Loans)


(Base Rate Loans)3
    4.00:1.00


2.00
%


1.00
%


1.75
%


0.75
%< 4.00:1.00 and
    3
    3.25:1.00


1.75
%


0.75
%


1.50
%


0.50
%< 3.25:1.00 and
    3
    2.75:1.00


1.50
%


0.50
%


1.50
%


0.50
%< 2.75:1.00


1.25
%


0.25
%


1.50
%


0.50
%   Guarantees
    and Securitization
    Credit
    Agreement Financial Covenants
      
    financial statements and other reports;
    continued existence;
    payment of taxes and claims;
    maintenance of properties;
    insurance coverage;
    inspections by lenders (subject to frequency and cost
    reimbursement limitations); 95




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    lenders meetings;
    compliance with laws;
    environmental matters;
    additional material real estate assets;
    designation of subsidiaries; and
    post-closing matters.    
    indebtedness (including guarantee obligations);
    liens;
    negative pledge clauses;
    restricted junior payments;
    clauses restricting subsidiary distributions;
    investments;
    fundamental changes;
    disposition of assets;
    acquisitions;
    conduct of business;
    amendments or waivers of certain agreements;
    changes in fiscal year; and
    hedge agreements.    
    maximum Covanta Energy leverage ratio of 4.00 to 1.00 for the
    four quarter period ended December 31, 2008, which measures
    Covanta Energys principal amount of consolidated debt less
    certain restricted funds dedicated to repayment of project debt
    principal and construction costs (Consolidated Adjusted
    Debt) to its adjusted earnings before interest, taxes,
    depreciation and amortization, as calculated under the Credit
    Facilities (Adjusted EBITDA). The definition of
    Adjusted EBITDA in the Credit Facilities excludes certain
    non-cash charges. The maximum Covanta Energy leverage ratio
    allowed under the Credit Facilities adjusts in future periods as
    follows:  
    4.00 to 1.00 for each of the four quarter periods ended
    March 31, June 30 and September 30, 2009;
    3.75 to 1.00 for each of the four quarter periods ended
    December 31, 2009, March 31, June 30 and
    September 30, 2010;
    3.50 to 1.00 for each four quarter period thereafter;  
    maximum Covanta Energy capital expenditures incurred to maintain
    existing operating businesses of $100 million per fiscal
    year, subject to adjustment due to an acquisition by Covanta
    Energy; and
    minimum Covanta Energy interest coverage ratio of 3.00 to 1.00,
    which measures Covanta Energys Adjusted EBITDA to its
    consolidated interest expense plus certain interest expense of
    ours, to the extent paid by Covanta Energy.    
    non-payment of principal when due;
    non-payment of any amount payable to an issuing bank in
    reimbursement of any drawing under a letter of credit when due;
    non-payment of interest, fees or other amounts after a grace
    period of five days;
    cross-default to material indebtedness;
    violation of a covenant (subject, in the case of certain
    affirmative covenants, to a grace period of thirty days);
    material inaccuracy of a representation or warranty when made; 96




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    bankruptcy events with respect to us, Covanta Energy or any
    material subsidiary or group of subsidiaries of Covanta Energy;
    material judgments;
    certain material ERISA events;
    change of control (subject to exceptions for certain of our
    existing owners);
    failure of subordination; and
    actual or asserted invalidity of any guarantee or security
    document.  2007
    Recapitalization
    
    the refinancing of our previously existing credit facilities
    with new credit facilities, comprised of a $300 million
    revolving credit facility, a $320 million funded letter of
    credit facility, and a $650 million term loan (collectively
    referred to as the Credit Facilities);
    an underwritten public offering of 6.118 million shares of
    our common stock, from which we received proceeds of
    approximately $136.6 million, net of underwriting discounts
    and commissions;
    an underwritten public offering of approximately
    $373.8 million aggregate principal amount of Debentures,
    from which we received proceeds of approximately
    $364.4 million, net of underwriting discounts and
    commissions; and
    the repayment, by means of a tender offer and redemptions, of
    approximately $611.9 million in aggregate principal amount
    of outstanding notes previously issued by certain of our
    intermediate subsidiaries.    Debentures
    six-month
   97




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2006
    Refinancing
    Financing
    Costs
   98




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 7.
    Project
    Debt    As of December 31,2008


2007Project debt related to Service Fee structures5.125-6.75% serial revenue bonds due 2009 through 2015

$
173,252


$
219,2363.0-7.0% term revenue bonds due 2009 through 2022


186,413



204,702Adjustable-rate revenue bonds due 2009 through 2019


68,220



100,6107.322% other debt obligations due 2009 through 2020


38,053



54,345Subtotal


465,938



578,893Unamortized debt premium, net


8,168



14,385Total Service Fee structure related project debt


474,106



593,278Project debt related to Tip Fee structures4.875-6.70% serial revenue bonds due 2009 through 2016


272,250



330,4205.00-8.375% term revenue bonds due 2010 through 2019


267,900



269,095Subtotal


540,150



599,515Unamortized debt premium, net


12,078



16,568Total Tip Fee structure related project debt


552,228



616,083International project debt


52,036



70,914Total project debt


1,078,370



1,280,275Less current project debt (includes $7,887 and $10,711 of
    unamortized premium)


(198,034
)


(195,625
)Noncurrent project debt

$
880,336


$
1,084,650           
    $28.9 million due to financial institutions, of which
    $5.8 million is denominated in U.S. dollars and
    $23.1 million is denominated in Indian rupees, relating to
    the construction of a heavy fuel-oil fired diesel engine power
    plant in India and working capital debt relating to the
    operations of the project. The U.S. dollar debt bears a
    coupon rate at the three-month LIBOR, plus 4.5% (8.26% as of
    December 31, 2008). The outstanding Indian rupee debt
    borrowed for construction of the power plant is serviced at a
    floating rate of 99




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11% as of December 31, 2008. The average coupon rate on the
    working capital debt was 12.3% in 2008. The construction related
    debt extends through 2011. The entire debt is non-recourse to
    us, and is secured by the project assets. The power off-taker
    failed to fund the escrow account or post the letter of credit
    required under the energy contract which failure constitutes a
    technical default under the project finance documents. The
    project lenders have not declared an event of default due to
    this matter and have permitted continued distributions of
    project dividends. 
    $23.1 million due to financial institutions relating to the
    construction of a second heavy fuel-oil fired diesel engine
    power plant in India and working capital debt relating to the
    operations of the project. The entire debt is denominated in
    Indian rupees. The construction related debt bears coupon rates
    ranging from 8.5% to 12.5% in 2008 and the average coupon rate
    on the working capital debt was 12% in 2008. The construction
    related debt extends through 2010. The entire debt is
    non-recourse to us and is secured by the project assets. The
    power off-taker failed to fund the escrow account or post the
    letter of credit required under the energy contract which
    failure constitutes a technical default under the project
    finance documents. The project lenders have not declared an
    event of default due to this matter and have permitted continued
    distributions of project dividends.      TotalLess:


Noncurrent2009


2010


2011


2012


2013


Thereafter


Total


Current Portion


Project DebtDebt

$
190,147


$
161,770


$
121,040


$
120,608


$
108,364


$
356,194


$
1,058,123


$
(190,147
)

$
867,976Premium


7,887



5,325



2,945



1,952



1,171



967



20,247



(7,887
)


12,360Total

$
198,034


$
167,095


$
123,985


$
122,560


$
109,535


$
357,161


$
1,078,370


$
(198,034
)

$
880,336     Note 8.
    Equity
    Method Investments      Ownership




OwnershipInterest as of




Interest as ofDecember 31,




December 31,2008

2008


2007

2007Ultrapower Chinese Station Plant (U.S.)(1)

55%

$
4,446


55%

$
4,880South Fork Plant (U.S.)

50%


1,098


50%


1,141Koma Kulshan Plant (U.S.)

50%


5,976


50%


6,059Ambiente 2000 (Italy)

40%


658


40%


757Haripur Barge Plant (Bangladesh)

45%


16,061


45%


13,982Quezon Power (Philippines)

26%


45,439


26%


43,159Sanfeng (China)

40%


12,217


40%


11,270Guangzhou (China)(1)

40%


1,328





Chengdu (China)(1)

49%


15,730





Total investments



$
102,953




$
81,248     (1)
    
    See Note 3. Acquisitions, Business Development and
    Dispositions for a discussion related to these equity
    investments. 100




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2008


2007Condensed Statements of Operations for the Years Ended
    December 31:Revenues

$
376,780


$
331,230Operating income


150,296



153,981Net income


68,940



57,472Companys share of net income


23,583



22,196Condensed Balance Sheets as of December 31:Current assets

$
214,295


$
208,795Noncurrent assets


790,157



792,166Total assets


1,004,452



1,000,961Current liabilities


119,551



158,201Noncurrent liabilities


432,658



441,914Total liabilities


552,209



600,115   Note 9.
    Income
    Taxes      For the Years Ended December 31,2008


2007


2006Current:Federal

$
(1,445
)

$
3,373


$
(4,889
)State


17,189



15,186



15,196Foreign


5,657



6,612



7,250Total current


21,401



25,171



17,557Deferred:Federal


72,834



8,793



29,819State


(1,884
)


(3,038
)


1,530Foreign


(124
)


114



(10,441
)Total deferred


70,826



5,869



20,908Total income tax expense

$
92,227


$
31,040


$
38,465     For the Years Ended December 31,2008


2007


2006Domestic

$
197,596


$
125,890


$
102,944Foreign


17,282



22,123



19,284Total

$
214,878


$
148,013


$
122,228    101




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      For the Years Ended December 31,2008


2007


2006Aggregate benefit

$
3,257


$
4,433


$
4,092Affect on diluted EPS

$
0.02


$
0.03


$
0.03     For the Years Ended December 31,2008


2007


2006Income tax expense at the federal statutory rate

$
75,207


$
51,805


$
42,780State and other tax expense


11,300



8,972



12,296Change in valuation allowance


10,610



(34,968
)


(10,319
)Grantor trust (loss) income


(104,443
)


5,580



6,210Subpart F income and foreign dividends


1,491



90



2,328Taxes on foreign earnings


(524
)


(1,132
)


(9,531
)Production tax credits


(8,529
)


(4,525
)


(3,158
)Expiration of tax attributes






5,977



Liability for uncertain tax positions


107,156



898



Other, net


(41
)


(1,657
)


(2,141
)Total income tax expense

$
92,227


$
31,040


$
38,465     Amount ofCarryforwardExpiring2009

$
18,4352010


23,6002011


19,7552012


38,2552019


33,6352022


26,9312023


108,3312024


2122025


2032026


2602027


3912028


321,449$
591,457    102




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        As of December 31,2008


2007Deferred Tax Assets:Loss reserve discounting

$
(1,568
)

$
926Capital loss carryforward


24,149



24,048Net operating loss carryforwards


104,730



101,466Accrued expenses


30,601



37,844Tax basis in bond and other costs


16,725



10,819Deferred tax assets attributable to Covanta Lake II, Inc.


5,259



5,713Deferred tax assets attributable to pass-through entities


9,869



84,368Other


5,535



18,115AMT and other credit carryforwards


32,750



23,055Total gross deferred tax asset


228,050



306,354Less: valuation allowance


(44,089
)


(33,246
)Total deferred tax asset


183,961



273,108Deferred Tax Liabilities:Unbilled accounts receivable


5,713



24,779Property, plant and equipment


465,027



553,359Intangible assets


68,593



35,583Deferred tax liabilities attributable to pass-through entities


104,564



43,382Capitalized interest


16,502



7,617Other, net


7,782



19,238Total gross deferred tax liability


668,181



683,958Net deferred tax liability

$
(484,220
)

$
(410,850
)      103




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Balance as of January 1, 2007

$
24,483Additions based on tax positions related to the current year


500Additions for tax positions of prior years


398Reductions for tax positions of prior years


Settlements


Balance at December 31, 2007

$
25,381Additions based on tax positions related to the current year


109,956Additions for tax positions of prior years


717Reductions for lapse in applicable statute of limitations


(280
)Reductions for tax positions of prior years


(3,237
)Balance at December 31, 2008

$
132,537      104




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           105




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 10.
    Amortization
    of Waste, Service and Energy Contracts  Waste,
    Service and Energy Contracts
        As of December 31, 2008

As of December 31, 2007Gross





GrossUseful

Carrying

Accumulated



Carrying

AccumulatedLife

Amount

Amortization

Net

Amount

Amortization

NetWaste, service and energy contracts (asset)


1  20 years


$
406,556


$
183,159


$
223,397


$
405,794


$
137,441


$
268,353Waste and service contracts (liability)


1  14 years


$
(156,705
)

$
(42,173
)

$
(114,532
)

$
(159,575
)

$
(29,111
)

$
(130,464
)     Waste, Service andEnergy Contracts


Waste and Service(Amortization


ContractsExpense)


(Contra-Expense)Year ended December 31, 2008

$
45,718


$
(13,062
)2009

$
42,302


$
(13,178
)2010


29,864



(12,721
)2011


26,740



(12,408
)2012


24,647



(12,412
)2013


21,037



(12,390
)Thereafter


78,807



(51,423
)Total

$
223,397


$
(114,532
)  106




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11.
    Other
    Intangible Assets and Goodwill  Other
    Intangible Assets
    As of December 31, 2008


As of December 31, 2007Gross








GrossCarrying


Accumulated





Carrying


AccumulatedUseful Life

Amount


Amortization


Net


Amount


Amortization


NetLease interest and other

10  21 years

$
73,848


$
10,739


$
63,109


$
72,235


$
7,598


$
64,637Landfill

5 years


17,985



7,329



10,656



17,985



5,198



12,787Total amortizable intangible assets




91,833



18,068



73,765



90,220



12,796



77,424Other intangibles

Indefinite


9,566







9,566



11,530







11,530Intangible assets, net



$
101,399


$
18,068


$
83,331


$
101,750


$
12,796


$
88,954     2009

2010

2011

2012

2013

Thereafter

TotalAnnual Remaining Amortization

$
5,231


$
5,231


$
5,231


$
5,231


$
5,231


$
47,610


$
73,765     Goodwill
      TotalBalance as of December 31, 2006

$
91,282Decrease to federal tax receivable associated with opening
    balance sheet adjustments for the ARC Holdings acquisition


2,127Goodwill related to the Central Valley acquisition


22,889Goodwill related to the Westchester County transfer stations
    acquired


896Goodwill related to the EnergyAnswers acquisition


9,833Balance as of December 31, 2007

$
127,027Increase to net deferred tax liabilities related to the deferred
    tax impact recognized on tax liquidation of ARC Holdings
    partnerships (Note 9)


67,929Purchase price adjustment related to the Central Valley
    acquisition


269Purchase price adjustment related to the Westchester County
    transfer stations acquired


578Purchase price adjustment related to the EnergyAnswers
    acquisition


(186
)Balance as of December 31, 2008

$
195,617  107




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 12.
    Supplementary
    Financial Information  Revenues
    and Unbilled Service Receivables
    For the Years Ended December 31,2008


2007


2006Waste and service revenues unrelated to project debt

$
836,115


$
764,560


$
711,832Revenue earned explicitly to service project debt-principal


72,229



69,163



69,097Revenue earned explicitly to service project debt-interest


26,183



30,673



36,704Total waste and service revenues

$
934,527


$
864,396


$
817,633         Other
    Operating Expenses
    For the Years Ended December 31,2008


2007


2006Construction costs

$
50,611


$
55,675


$
2,476Insurance subsidiary operating expenses


12,641



10,699



10,435Proceeds related to insurance recoveries


(3,934
)


(1,909
)


(4,855
)Loss on the retirement of fixed assets


7,475



1,940



305Unrealized/realized foreign exchange loss (gain)


1,899



(1,719
)


(587
)Proceeds received for distributions and settlements related to
    the reorganization of Covanta Energy










(2,600
)Other


(1,991
)


(4,047
)


(2,580
)Total other operating expenses

$
66,701


$
60,639


$
2,594   Semass
    Fire
   108




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Insurance RecoveriesRecorded


Cash Proceeds ReceivedFor the Years Ended December 31,2008


2007


2008


2007Repair and reconstruction costs (Insurance recoveries, net of
    write-down of assets)

$
8.3


$
17.3


$
16.2


$
9.4Clean-up
    costs (reduction to Plant operating expenses)

$



$
2.7


$



$
2.7Business interruption losses (reduction to Plant operating
    expenses)

$
5.2


$
2.0


$
7.2


$
   Selected
    Supplementary Balance Sheet Information
    As of December 31,2008


2007Interest rate swap (Note 19)

$
13,984


$
8,913Contract acquisition costs


10,351



8,569Reinsurance recoverable on unpaid losses


9,155



10,035Deferred financing costs


10,191



14,143Spare parts


16,631



16,048Other noncurrent receivables


21,121



14,838Restricted funds for pre-petition tax liabilities


20,419



19,997Prepaid expenses


27,655



11,131Other


10,037



8,880Total Other Noncurrent Assets

$
139,544


$
112,554Interest payable

$
16,328


$
20,676Deferred income taxes


17,752



Payroll and payroll taxes


33,840



29,853Accrued liabilities to client communities


46,245



75,528Operating expenses


68,420



79,135Other


32,461



28,808Total Accrued Expenses and Other Current Liabilities

$
215,046


$
234,000Deferred revenue

$
4,345


$
4,931Interest rate swap (Note 19)


13,984



8,913Benefit obligations (Note 16)


35,110



17,360Asset retirement obligations (Note 1)


25,911



24,556Tax liabilities for uncertain tax positions (Note 9)


33,965



33,041Insurance loss and loss adjustment reserves (Note 1)


29,362



32,436Other


23,204



20,503Total Other Noncurrent Liabilities

$
165,881


$
141,740  109




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 13.
    Investments          As of December 31, 2008Cost or


Unrealized


Unrealized


FairAmortized Cost


Gain


Loss


ValueCurrent investments:Fixed maturities

$
300


$



$



$
300Equity securities  insurance business


760



62



30



792Total current investments

$
1,060


$
62


$
30


$
1,092Noncurrent investments:Fixed maturities  insurance business:U.S. government/Agency

$
17,897


$
329


$
19


$
18,207Mortgage-backed


4,183



27



26



4,184Corporate


4,540







194



4,346Total fixed maturities  insurance business


26,620



356



239



26,737Investment at cost  international business


3,437











3,437Mutual and bond funds


1,404







433



971Total noncurrent investments

$
31,461


$
356


$
672


$
31,145   110




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  As of December 31, 2007Cost or


Unrealized


Unrealized


FairAmortized Cost


Gain


Loss


ValueCurrent investments:Fixed maturities

$
2,495


$



$



$
2,495Equity securities  insurance business


909



231



30



1,110Total current investments

$
3,404


$
231


$
30


$
3,605Noncurrent investments:Fixed maturities  insurance business:U.S. government/Agency

$
14,750


$
70


$
7


$
14,813Mortgage-backed


5,707



3



140



5,570Corporate


5,881



8



12



5,877Total fixed maturities  insurance business


26,338



81



159



26,260Investment at cost  international business


3,437











3,437Mutual and bond funds


2,225



24







2,249Total noncurrent investments

$
32,000


$
105


$
159


$
31,946     As of December 31,


As of December 31,2008


2007Fair


Unrealized


Fair


UnrealizedDescription of Investments

Value


Losses


Value


LossesU.S. Treasury and other direct U.S. Government obligations

$
2,841


$
19


$
4,718


$
7Federal agency mortgage backed securities


1,547



26



5,419



140Corporate bonds


3,996



194



4,148



12Total fixed maturities


8,384



239



14,285



159Equity securities


307



30



240



30Total temporarily impaired investments

$
8,691


$
269


$
14,525


$
189      111




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31, 2008Amortized Cost


Fair ValueAvailable-for-sale:One year or less

$
4,624


$
4,648Over one year to five years


21,845



21,939Over five years to ten years


151



150More than ten years






Total fixed maturities

$
26,620


$
26,737     For the Years EndedDecember 31,2008


2007


2006Fixed maturities, net

$
195


$
747


$
331Equity securities, net


(169
)


(59
)


130Mutual and bond funds


(433
)


24



98Change in net unrealized (loss) gain on investments

$
(407
)

$
712


$
559     For the Years EndedDecember 31,2008


2007


2006Net unrealized holding (loss) gain on available-for-sale
    securities arising during the period

$
(543
)

$
698


$
777Reclassification adjustment for net realized losses (gains) on
    available-for-sale securities included in net income


136



14



(218
)Net unrealized (loss) gain on available-for-sale securities

$
(407
)

$
712


$
559     For the Years EndedDecember 31,2008


2007


2006Net realized investment (loss) gainFixed maturities

$
22


$
(75
)

$
(96
)Equity securities


(158
)


61



314Net realized investment (loss) gain

$
(136
)

$
(14
)

$
218  112




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the Years EndedDecember 31,2008


2007


2006Holding CompanyFixed maturities

$



$



$
Short-term investments


481



4,360



2,318Net investment income  holding company

$
481


$
4,360


$
2,318Insurance businessFixed maturities

$
936


$
1,196


$
1,582Dividend income


46



61



81Other, net


196



371



183Total investment income


1,178



1,628



1,846Less: investment expense


177



172



211Net investment income  insurance business

$
1,001


$
1,456


$
1,635     Note 14.
    Property,
    Plant and Equipment, net    As of December 31,Useful Lives


2008


2007Land





$
22,999


$
23,967Facilities and equipment


3-37 years



3,043,124



2,999,718Landfills






42,091



26,574Construction in progress






36,858



46,850Total






3,145,072



3,097,109Less: accumulated depreciation and amortization






(615,037
)


(476,602
)Property, plant, and equipment  net





$
2,530,035


$
2,620,507     Note 15.
    Leases   113




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2010


2011


2012


2013


Thereafter


TotalFuture Minimum Rental Payments

$
57,580


$
49,506


$
40,444


$
33,390


$
27,151


$
157,961


$
366,032Non-Recourse Portion of Future Minimum Rental Payments

$
23,065


$
23,362


$
23,571


$
23,611


$
18,005


$
102,108


$
213,722       No. 01-08, (EITF 01-08).
  EITF 01-08
  As of December 31,2008


2007Land

$
24


$
43Energy facilities


61,077



91,207Buildings, machinery and improvements


5,961



9,362Total


67,062



100,612Less: accumulated depreciation and amortization


(23,222
)


(35,994
)Property, plant, and equipment  net

$
43,840


$
64,618  Note 16.  Employee
    Benefit Plans   114




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Defined
    Contribution Plans
    Pension
    and Postretirement Benefit Obligations
        
    Based on this evaluation for the year ended December 31,
    2007, we increased the discount rate assumption for benefit
    obligations from 5.75% as of December 31, 2006 to 6.50% as
    of December 31, 2007. We recorded a pension plan liability
    equal to the amount by which the present value of the projected
    benefit obligations (using a discount rate of 6.50%) exceeded
    the fair value of pension assets as of December 31, 2007.
    We recognized a net actuarial gain of $14.5 million,
    $9.4 million net of deferred tax, in AOCI during the year
    ended December 31, 2007.
    Based on this evaluation for the year ended December 31,
    2008, we decreased the discount rate assumption for benefit
    obligations from 6.50% as of December 31, 2007 to 6.25% as
    of December 31, 2008. We recorded a pension plan liability
    equal to the amount by which the present value of the projected
    benefit obligations (using a discount rate of 6.25%) exceeded
    the fair value of pension assets as of December 31, 2008.
    We recognized a net actuarial loss of $20.0 million,
    $13.2 million net of deferred tax, in AOCI during the year
    ended December 31, 2008. 115




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Pension Benefits


Other BenefitsFor the Year


For the Year


For the Year


For the YearEnded


Ended


Ended


EndedDecember 31,


December 31,


December 31,


December 31,2008


2007


2008


2007Change in benefit obligation:Benefit obligation

$
72,895


$
80,145


$
8,810


$
13,851Service cost














Interest cost


4,705



4,582



549



768Amendments


663











Actuarial loss (gain)


541



(10,023
)


(143
)


(4,726
)Benefits paid


(1,452
)


(1,810
)


(1,055
)


(1,083
)Benefit obligation at end of year

$
77,352


$
72,894


$
8,161


$
8,810Change in plan assets:Plan assets at fair value

$
61,639


$
55,211


$



$
Actual return on plan assets


(13,596
)


4,035







Contributions


4,165



4,203



1,055



1,082Benefits paid


(1,452
)


(1,810
)


(1,055
)


(1,082
)Plan assets at fair value at end of year

$
50,756


$
61,639


$



$
Reconciliation of accrued benefit liability and net amount
    recognized:Funded status of the plan

$
(26,596
)

$
(11,255
)

$
(8,161
)

$
(8,810
)Unrecognized net gain














Net amount recognized

$
(26,596
)

$
(11,255
)

$
(8,161
)

$
(8,810
)Accumulated other comprehensive loss (income) recognized
    under SFAS 158:Net actuarial loss (gain)

$
4,681


$
(14,644
)

$
(2,360
)

$
(2,371
)Net prior service cost


663











Total as of December 31, 2008

$
5,344


$
(14,644
)

$
(2,360
)

$
(2,371
)Weighted average assumptions used to determine net periodic
    benefit expense for years ending December 31:Discount rate


6.50
%


5.75
%


6.50
%


5.75
%Expected return on plan assets


7.50
%


8.00
%


N/A



N/ARate of compensation increase


4.00
%


4.00
%


N/A



N/AWeighted average assumptions used to determine projected
    benefit obligations as of December 31:Discount rate


6.25
%


6.50
%


6.25
%


6.50
%Rate of compensation increase


4.00
%


4.00
%


N/A



N/A  116




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31,2008


2007Total Equities


45
%


52
%Total Debt Securities


49
%


42
%Other


6
%


6
%Total


100
%


100
%     Total Equities


40  75
%Total Debt Securities


20  60
%Other


0  10
%           As of December 31,2009


2010


2011


2012


2013


2014 - 2018Pension Benefits

$
1,590


$
1,869


$
2,227


$
2,859


$
3,167


$
17,783Other Benefits (Net of Medicare Part D Subsidy)

$
650


$
666


$
692


$
712


$
728


$
3,043Attributable to Medicare Part D Subsidy

$
(38
)

$
(40
)

$
(41
)

$
(42
)

$
(42
)

$
(174
)  117




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension Benefits


Other BenefitsFor the Year


For the Year


For the Year


For the YearEnded


Ended


Ended


EndedDecember 31,


December 31,


December 31,


December 31,2008


2007


2008


2007Components of Net Periodic Benefit Cost:Service cost

$



$



$



$
Interest cost


4,705



4,582



549



768Expected return on plan assets


(4,728
)


(4,430
)






Amortization of net actuarial (gain) loss


(524
)






(154
)


105Net periodic benefit cost


(547
)


152



395



873SFAS 88 settlement cost(1)


65



18







Final net periodic benefit cost

$
(482
)

$
170


$
395


$
873     (1)
    
    SFAS No. 88, Employers Accounting for
    Settlements and Curtailments of Defined Benefit Pension Plans
    and for Termination Benefits (SFAS 88).    One-Percentage


One-PercentagePoint Increase


Point DecreaseEffect on total service and interest cost components

$
34


$
(24
)Effect on postretirement benefit obligation

$
454


$
(401
)   Note 17.
    Stock-Based
    Award Plans  Stock-Based
    Compensation
       118




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-Based
    Award Plans
      Restricted
    Stock Awards
         119




---



##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-AverageNumber of


Grant DateShares


Fair ValueNonvested at December 31, 2007


812,826


$
18.77Granted


494,105



26.37Vested


(428,656
)


17.64Forfeited


(21,029
)


23.17Nonvested at December 31, 2008


857,246



23.61     Stock
    Options
      Stock


Exercise


Risk-Free


Dividend


Volatility


ExpectedGrant Date

Options


Price


Interest Rate


Yield


Expected (A)


Life (B)February 21, 2008


200,000


$
26.26



3.387
%


0
%


28
%


6.54 yearsMarch 31, 2008


50,000


$
27.50



2.977
%


0
%


31
%


6.48 years     (A)
    
    Expected volatility is based on implied volatility.(B)
    
    Simplified method per SAB 107 and 110. 120




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     As of December 31,2008


2007


2006Weighted





Weighted





WeightedAverage





Average





AverageExercise





Exercise





ExerciseShares


Price


Shares


Price


Shares


Price1995 Stock Option PlanOutstanding at the beginning of the year


108,426


$
3.86



178,426


$
5.11



315,093


$
5.26Granted






















Exercised










70,000



7.06



136,667



5.45Forfeited






















Outstanding at the end of the year


108,426


$
3.86



108,426


$
3.86



178,426


$
5.11Options exercisable at year end


108,426


$
3.86



108,426


$
3.86



178,426


$
5.11Options available for future grant






















2004 Stock Option PlanOutstanding at the beginning of the year


2,553,443


$
17.96



851,238


$
8.87



928,115


$
8.14Granted


250,000



26.51



1,805,000



22.14



50,000



20.35Exercised


21,500



12.18



42,795



7.43



41,543



9.19Forfeited


12,000



22.02



60,000



22.02



85,334



7.43Outstanding at the end of the year


2,769,943


$
18.76



2,553,443


$
17.96



851,238


$
8.87Options exercisable at year end


1,126,543


$
12.87



500,617


$
9.24



216,572


$
10.12Options available for future grant


6,851,630







1,295,735







3,494,230     WeightedAverageOptions Outstanding


Remaining


Options ExercisableNumber of


Weighted Average


Contractual Life


Number of


Weighted AverageExercise Price Range

Shares


Exercise Price


(Years)


Shares


Exercise Price$1.45 - $5.31


108,426


$
3.86



3.23



108,426


$
3.86$7.43


637,271



7.43



5.80



637,271



7.43$12.90


106,672



12.90



6.70



106,672



12.90$20.35 - $22.02


1,726,000



21.97



8.20



372,600



21.80$24.80 - $28.34


300,000



26.46



9.50



10,000



26.222,878,369











1,234,969      121




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 18.
    Accumulated
    Other Comprehensive (Loss) Income    As of December 31,2008


2007Foreign currency translation

$
(5,233
)

$
5,248Minimum pension liability


(765
)


(362
)Amortization of SFAS 158 unrecognized net actuarial (loss)
    gain


(2,122
)


11,096Net unrealized (loss) gain on available-for-sale securities


(85
)


322Accumulated other comprehensive (loss) income

$
(8,205
)

$
16,304   Note 19.
    Financial
    Instruments  instrument-by-instrument
  FAS 157-2,
    Fair Value Measurements at Reporting Date UsingQuoted Prices inAs of


Active Markets for


Significant Other


SignificantDecember 31,


Identical Assets


Observable Inputs


Unobservable Inputs2008


(Level 1)


(Level 2)


(Level 3)(In thousands)Marketable securities available for sale

$
300


$
300


$



$
Investments in fixed maturities at market


26,737



26,737







Derivatives  Contingent interest feature of the
    Convertible Debentures (See Note 6)


0







0



Total

$
27,037


$
27,037


$
0


$
     
    For cash and cash equivalents, restricted funds, and marketable
    securities, the carrying value of these amounts is a reasonable
    estimate of their fair value. The fair value of restricted funds
    held in trust is based on quoted market prices of the
    investments held by the trustee.
    Fair values for debt were determined based on interest rates
    that are currently available to us for issuance of debt with
    similar terms and remaining maturities for debt issues that are
    not traded on quoted market prices. The fair value of project
    debt is estimated based on quoted market prices for the same or
    similar issues.
    Fair value of our interest rate swap agreement is the estimated
    amount we would receive or pay to terminate the agreement based
    on the net present value of the future cash flows as defined in
    the agreement. 122




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       As of December 31, 2008Carrying


EstimatedAmount


Fair ValueAssets:Cash and cash equivalents

$
192,393


$
192,393Receivables


262,731



262,731Restricted funds


345,330



345,633Parent investments  fixed maturity securities


300



300Insurance business investments  fixed maturity
    securities


26,737



26,737Insurance business investments  equity securities


792



792Interest rate swap receivable


13,984



13,984Liabilities:Long-term debt

$
1,012,887


$
850,122Project debt


1,078,370



1,045,371Interest rate swap payable


13,984



13,984Off Balance-Sheet Financial Instruments:Guarantees(a)     (a)
    
    Additionally guarantees include approximately $1.5 million
    of guarantees related to international energy projects.  Contingent
    Interest
    Interest
    Rate Swaps
   123




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 20.
    Related-Party
    Transactions        Note 21.
    Commitments
    and Contingencies  and/or
 124




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Covanta
    Energy Corporation
    Environmental
    Matters
    and/or
       125




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or and/or and/or
  Other
    Commitments
    Commitments Expiring by PeriodLess Than


More ThanTotal


One Year


One YearLetters of credit

$
300,415


$
46,111


$
254,304Surety bonds


64,086







64,086Total other commitments  net

$
364,501


$
46,111


$
318,390           
    holders may require us to repurchase their Debentures on
    February 1, 2012, February 1, 2017 and
    February 1, 2022;
    holders may require us to repurchase their Debentures, if a
    fundamental change occurs; and
    holders may exercise their conversion rights upon the occurrence
    of certain events, which would require us to pay the conversion
    settlement amount in cash
    and/or our
    common stock.     126




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##### Table of Contents



COVANTA
    HOLDING CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Concluded)
  Item 1A. Risk
    Factors  We have provided guarantees and financial
    support in connection with our projects.
  Note 22.
    Quarterly
    Data (Unaudited)    Calendar Quarter EndedMarch 31,


June 30,


September 30,


December 31,Fiscal Quarter

2008


2007


2008


2007


2008


2007


2008


2007Operating revenue

$
388,766


$
330,209


$
422,996


$
355,140


$
438,671


$
352,350


$
413,820


$
395,388Operating income


30,765



8,280



76,529



77,212



88,083



71,627



60,588



79,491Net income (loss)


14,772



(17,918
)


44,853



37,716



49,700



38,415



29,948



72,300Earnings (loss) per share:Basic


0.10



(0.12
)


0.29



0.25



0.32



0.25



0.20



0.47Diluted


0.10



(0.12
)


0.29



0.24



0.32



0.25



0.19



0.47  127




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##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts
    Receivables Valuation and Qualifying Accounts  AdditionsBalance at


Charged to


Charged to





Balance atBeginning


Costs and


Other





End ofof Period


Expense


Accounts


Deductions


Period(In thousands)For the year ended December 31, 2008Allowances deducted in the balance sheet from the assets to
    which they apply:Doubtful receivables  current

$
4,353


$
1,821


$



$
2,737


$
3,437Doubtful receivables  noncurrent


409



18







120



307Total

$
4,762


$
1,839


$



$
2,857


$
3,744For the year ended December 31, 2007Allowances deducted in the balance sheet from the assets to
    which they apply:Doubtful receivables  current

$
4,469


$
1,270


$
19


$
1,405


$
4,353Doubtful receivables  noncurrent


382



(80
)






(107
)


409Total

$
4,851


$
1,190


$
19


$
1,298


$
4,762For the year ended December 31, 2006Allowances deducted in the balance sheet from the assets to
    which they apply:Doubtful receivables  current

$
4,959


$
2,088


$
1,003


$
3,581


$
4,469Doubtful receivables  noncurrent


274



81







(27
)


382Total

$
5,233


$
2,169


$
1,003


$
3,554


$
4,851   Item 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    Item 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures.
  Rule 13a-15(b) 15d-15(b)
     128




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##### Table of Contents



Changes
    in Internal Control over Financial Reporting
   129




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##### Table of Contents



Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f).
    Internal Control  Integrated Framework. Internal
    Control  Integrated Framework
  Form 10-K
  Anthony
    J. Orlando
    President and Chief Executive Officer
  Mark
    A. Pytosh
    Executive Vice President and Chief
 Financial Officer
   130




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                
    131




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##### Table of Contents



Item 9B.
    OTHER
    INFORMATION    PART III  Item 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Item 1.
    Business  Executive Officers Form 10-K. www.covantaholding.com
  Item 11.
    EXECUTIVE
    COMPENSATION  Form 10-K
  Item 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  Form 10-K
  Equity
    Compensation Plans
    Weighted Average


Number of Securities RemainingNumber of Securities to


Exercise Price of


Available for Future Issuancebe Issued Upon Exercise


Outstanding


Under Equity Compensationof Outstanding Options,


Options, Warrants


Plans (Excluding SecuritiesWarrants and Rights


and Rights


Reflected in Column A)Plan category

(A)


(B)


(C)Equity Compensation Plans Approved By Security Holders


2,878,369


$
18.20



7,028,964
(1)Equity Compensation Plans Not Approved By Security Holders


N/A



N/A



N/ATOTAL


2,878,369


$
18.20



7,028,964     (1)
    
    Of the 7,028,964 shares that remain available for future
    issuance, 6,851,630 are currently reserved for issuance under
    the equity compensation plans. 132




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##### Table of Contents



Item 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  Form 10-K
  Item 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES  Form 10-K
  PART IV  Item 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Consolidated Financial Statements of Covanta Holding
    Corporation:
    Consolidated Statements of Income for the years ended
    December 31, 2008, 2007 and 2006Consolidated Balance Sheets as of December 31, 2008 and 2007Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007 and 2006Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2008, 2007 and 2006Notes to Consolidated Financial Statements, for the years ended
    December 31, 2008, 2007 and 2006Report of Ernst & Young LLP, Independent Auditors, on
    the consolidated financial statements of Covanta Holding
    Corporation for the years ended December 31, 2008, 2007 and
    2006  Financial Statement Schedules of Covanta Holding
    Corporation:
  Included in Part II of this report:  Schedule II  Valuation and Qualifying Accounts   133




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##### Table of Contents



Exhibits:
  EXHIBIT INDEX
  Exhibit No.

DescriptionPlan of Acquisition, Reorganization, Arrangement, Liquidation
    or Succession.2
.1

Investment and Purchase Agreement by and between Covanta Holding
    Corporation and Covanta Energy Corporation dated as of December
    2, 2003 (incorporated herein by reference to Exhibit 2.1 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated December 2, 2003 and filed with the SEC on December 5,
    2003, as amended by Covanta Holding Corporations Current
    Report on Form 8-K/A dated December 2, 2003 and filed with the
    SEC on January 30, 2004).2
.2

Note Purchase Agreement by and between Covanta Holding
    Corporation and the Purchasers named therein dated as of
    December 2, 2003 (incorporated herein by reference to Exhibit
    2.2 of Covanta Holding Corporations Current Report on Form
    8-K dated December 2, 2003 and filed with the SEC on December 5,
    2003, as amended by Covanta Holding Corporations Current
    Report on Form 8-K/A dated December 2, 2003 and filed with the
    SEC on January 30, 2004).2
.3

Amendment to Investment and Purchase Agreement by and between
    Covanta Holding Corporation and Covanta Energy Corporation dated
    February 23, 2004 (incorporated herein by reference to Exhibit
    2.3 of Covanta Holding Corporations Current Report on Form
    8-K dated March 10, 2004 and filed with the SEC on March 11,
    2004).2
.4

First Amendment to Note Purchase Agreement and Consent by and
    among Covanta Holding Corporation and D.E. Shaw Laminar
    Portfolios, L.L.C., SZ Investments, L.L.C. and Third Avenue
    Trust, on behalf of The Third Avenue Value Fund Series, dated as
    of February 23, 2004 (incorporated herein by reference to
    Exhibit 2.4 of Covanta Holding Corporations Current Report
    on Form 8-K dated March 10, 2004 and filed with the SEC on March
    11, 2004).2
.5

Stock Purchase Agreement among Covanta ARC Holdings, Inc., the
    Sellers party thereto and Covanta Holding Corporation dated as
    of January 31, 2005 (incorporated herein by reference to Exhibit
    2.1 of Covanta Holding Corporations Current Report on Form
    8-K dated January 31, 2005 and filed with the SEC on February 2,
    2005).Articles of Incorporation and By-Laws.3
.1

Restated Certificate of Incorporation of Covanta Holding
    Corporation (incorporated herein by reference to Exhibit 3.1 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated January 19, 2007 and filed with the SEC on January 19,
    2007).3
.2

Amended and Restated Bylaws of Covanta Holding Corporation, as
    amended and effective May 30, 2007 (incorporated herein by
    reference to Exhibit 3.1(ii) of Covanta Holding
    Corporations Current Report on Form 8-K dated May 30, 2007
    filed with the SEC on May 31, 2007).Instruments Defining Rights of Security Holders, Including
    Indentures.4
.1

Specimen certificate representing shares of Covanta Holding
    Corporations common stock (incorporated herein by
    reference to Exhibit 4.1 of Covanta Holding Corporations
    Amendment No. 3 to Registration Statement on Form S-1 filed with
    the SEC on December 19, 2005).4
.2

Registration Rights Agreement dated November 8, 2002 among
    Covanta Holding Corporation and SZ Investments, L.L.C.
    (incorporated herein by reference to Exhibit 10.6 of Covanta
    Holding Corporations Annual Report on Form 10-K for the
    year ended December 27, 2002 and filed with the SEC on March 27,
    2003).4
.3

Registration Rights Agreement between Covanta Holding
    Corporation, D.E. Shaw Laminar Portfolios, L.L.C., SZ
    Investments, L.L.C., and Third Avenue Trust, on behalf of The
    Third Avenue Value Fund Series, dated December 2, 2003
    (incorporated herein by reference to Exhibit 4.1 of Covanta
    Holding Corporations Current Report on Form 8-K dated
    December 2, 2003 and filed with the SEC on December 5, 2003).4
.4

Form of Warrant Offering Agreement between Wells Fargo Bank,
    National Association and Covanta Holding Corporation
    (incorporated herein by reference to Exhibit 4.11 of Covanta
    Holding Corporations Amendment No. 3 to Registration
    Statement on Form S-1 filed with the SEC on December 19, 2005). 134




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##### Table of Contents



Exhibit No.

Description4
.5

Indenture dated as of January 18, 2007 between Covanta Holding
    Corporation and Wells Fargo Bank, National Association, as
    trustee. (incorporated herein by reference to Exhibit 4.1 of
    Covanta Holding Corporations Registration Statement on
    Form S-3 (Reg. No. 333-140082) filed with the SEC on January 19,
    2007).4
.6

First Supplemental Indenture dated as of January 31, 2007
    between Covanta Holding Corporation and Wells Fargo Bank,
    National Association, as trustee (including the Form of Global
    Debenture) (incorporated herein by reference to Exhibit 4.2 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated January 31, 2007 and filed with the SEC on February 6,
    2007).Material Contracts.10
.1

Tax Sharing Agreement, dated as of March 10, 2004, by and
    between Covanta Holding Corporation, Covanta Energy Corporation,
    and Covanta Power International Holdings, Inc. (incorporated
    herein by reference to Exhibit 10.25 of Covanta Holding
    Corporations Annual Report on Form 10-K for the year ended
    December 31, 2003 and filed with the SEC on March 15, 2004).10
.2

Corporate Services and Expenses Reimbursement Agreement, dated
    as of March 10, 2004, by and between Covanta Holding Corporation
    and Covanta Energy Corporation (incorporated herein by reference
    to Exhibit 10.26 of Covanta Holding Corporations Annual
    Report on Form 10-K for the year ended December 31, 2003 and
    filed with the SEC on March 15, 2004).10
.3

Management Services and Reimbursement Agreement, dated March 10,
    2004, among Covanta Energy Corporation, Covanta Energy Group,
    Inc., Covanta Projects, Inc., Covanta Power International
    Holdings, Inc., and certain Subsidiaries listed therein
    (incorporated herein by reference to Exhibit 10.30 of Covanta
    Holding Corporations Annual Report on Form 10-K for the
    year ended December 31, 2003 and filed with the SEC on March 15,
    2004).10
.4*

Covanta Energy Savings Plan, as amended by December 2003
    amendment (incorporated herein by reference to Exhibit 10.25 of
    Covanta Holding Corporations Annual Report on Form 10-K
    for the year ended December 31, 2004 and filed with the SEC on
    March 16, 2005).10
.5*

Covanta Holding Corporation Equity Award Plan for Employees and
    Officers, as amended (incorporated herein by reference to
    Exhibit A of Covanta Holding Corporations 2008 Definitive
    Proxy Statement on Form DEF 14A filed with the SEC on April 1,
    2008).10
.6*

Covanta Holding Corporation Equity Award Plan for Directors, as
    amended (incorporated herein by reference to Exhibit B of
    Covanta Holding Corporations 2008 Definitive Proxy
    Statement on Form DEF 14A filed with the SEC on April 1, 2008).10
.7*

Form of Covanta Holding Corporation Stock Option Agreement for
    Employees and Officers (incorporated herein by reference to
    Exhibit 4.3 of Covanta Holding Corporations Registration
    Statement on Form S-8 filed with the SEC on May 7, 2008).10
.8*

Form of Covanta Holding Corporation Restricted Stock Award
    Agreement (incorporated herein by reference to Exhibit 4.4 of
    Covanta Holding Corporations Registration Statement on
    Form S-8 filed with the SEC on May 7, 2008).10
.9*

Covanta Holding Corporation 1995 Stock and Incentive Plan (as
    amended effective December 12, 2000 and as further amended
    effective July 24, 2002) (incorporated herein by reference to
    Appendix A to Covanta Holding Corporations Proxy Statement
    filed with the SEC on June 24, 2002).10
.10*

Employment Agreement, dated October 5, 2004, by and between
    Anthony J. Orlando and Covanta Projects, Inc., Covanta Energy
    Corporation and Covanta Holding Corporation (incorporated herein
    by reference to Exhibit 10.1 of Covanta Holding
    Corporations Current Report on Form 8-K dated October 5,
    2004 and filed with the SEC on October 7, 2004).10
.11*

Employment Agreement, dated October 5, 2004, by and between
    Timothy J. Simpson and Covanta Projects, Inc., Covanta Energy
    Corporation and Covanta Holding Corporation (incorporated herein
    by reference to Exhibit 10.3 of Covanta Holding
    Corporations Current Report on Form 8-K dated October 5,
    2004 filed with the SEC on October 7, 2004).10
.12*

Form of Covanta Holding Corporation Amendment to Stock Option
    Agreement for Employees and Officers (incorporated herein by
    reference to Exhibit 10.1 of Covanta Holding Corporations
    Current Report on Form 8-K dated March 18, 2005 and filed with
    the SEC on March 24, 2005). 135




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##### Table of Contents



Exhibit No.

Description10
.13

Summary Description of Covanta Holding Corporation Cash Bonus
    Program, dated February 2008 (incorporated herein by reference
    to Exhibit 10.14 of Covanta Holding Corporations Annual
    Report on Form 10-K for the fiscal year ended December 31, 2007).10
.14

Amendment No. 1 to Tax Sharing Agreement, dated as of June 24,
    2005, by and between Covanta Holding Corporation, Covanta Energy
    Corporation and Covanta Power International Holdings, Inc.,
    amending Tax Sharing Agreement between Covanta Holding
    Corporation, Covanta Energy Corporation and Covanta Power
    International Holdings, Inc. dated as of March 10, 2004
    (incorporated herein by reference to Exhibit 10.8 of Covanta
    Holding Corporations Current Report on Form 8-K dated June
    24, 2005 and filed with the SEC on June 30, 2005).10
.15*

Employment Agreement, dated October 5, 2004, by and between John
    Klett and Covanta Energy Corporation (incorporated herein by
    reference to Exhibit 10.7 of Covanta Energy Corporations
    Current Report on Form 8-K dated October 5, 2004 and filed with
    the SEC on October 7, 2004).10
.16*

Employment Agreement, dated October 5, 2004, by and between Seth
    Myones and Covanta Energy Corporation (incorporated herein by
    reference to Exhibit 10.9 of Covanta Energy Corporations
    Current Report on Form 8-K dated October 5, 2004 and filed with
    the SEC on October 7, 2004).10
.17*

Form of Amendment to Employment Agreement witha. Anthony J. Orlando, President and Chief Executive
    Officer;b. Mark A. Pytosh, Executive Vice President and
    Chief Financial Officer;c. John M. Klett, Executive Vice President and Chief
    Operating Officer;d. Timothy J. Simpson, Executive Vice President,
    General Counsel and Secretary;e. Seth Myones, President, Americas Covanta Energyand certain subsidiaries, dated October 22, 2008, and effective
    as of January 1, 2009 (incorporated herein by reference to
    Exhibit 10.1 of Covanta Holding Corporations Quarterly
    Report on Form 10-Q for the period ended September 30, 2008 and
    filed with the SEC on October 22, 2008).10
.18

Rehabilitation Plan Implementation Agreement, dated January 11,
    2006, by and between John Garamendi, Insurance Commissioner of
    the State of California, in his capacity as Trustee of the
    Mission Insurance Company Trust, the Mission National Insurance
    Company Trust and the Enterprise Insurance Company Trust, on the
    one hand, and Covanta Holding Corporation, on the other hand
    (incorporated herein by reference to Exhibit 10.1 of Covanta
    Holding Corporations Current Report on Form 8-K dated
    March 2, 2006 and filed with the SEC on March 6, 2006).10
.19

Amendment to Rehabilitation Plan Implementation Agreement,
    accepted and agreed to on March 17, 2006 (incorporated herein by
    reference to Exhibit 10.1 of Covanta Holding Corporations
    Current Report on Form 8-K dated March 17, 2006 and filed with
    the SEC on March 20, 2006).10
.20

Amendment to Agreement Regarding Closing (Exhibit A to the
    Rehabilitation Plan Implementation Agreement), dated January 10,
    2006, by and between John Garamendi, Insurance Commissioner of
    the State of California, in his capacity as Trustee of the
    Mission Insurance Company Trust, the Mission National Insurance
    Company Trust, and the Enterprise Insurance Company Trust, on
    the one hand, and Covanta Holding Corporation, on the other hand
    (incorporated herein by reference to Exhibit 10.2 of Covanta
    Holding Corporations Current Report on Form 8-K dated
    March 2, 2006 and filed with the SEC on March 6, 2006).10
.21

Latent Deficiency Claims Administration Procedures Agreement
    (Exhibit B to the Rehabilitation Plan Implementation Agreement),
    dated January 11, 2006, by and between John Garamendi, Insurance
    Commissioner of the State of California, in his capacity as
    Trustee of the Mission Insurance Company Trust, the Mission
    National Insurance Company Trust and the Enterprise Insurance
    Company Trust, on the one hand, and Covanta Holding Corporation
    on the other hand (incorporated herein by reference to Exhibit
    10.3 of Covanta Holding Corporations Current Report on
    Form 8-K dated March 2, 2006 and filed with the SEC on March 6,
    2006).10
.22*

Transition and Separation Agreement, dated April 5, 2006, among
    Craig D. Abolt, Covanta Holding Corporation, Covanta Energy
    Corporation and Covanta Projects, Inc. (incorporated herein by
    reference to Exhibit 10.1 of Covanta Holding Corporations
    Current Report on Form 8-K dated April 5, 2006 and filed with
    the SEC on April 7, 2006). 136




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##### Table of Contents



Exhibit No.

Description10
.23

Amended and Restated Credit Agreement, dated as of May 26, 2006,
    among Covanta Energy Corporation, Covanta Holding Corporation as
    a guarantor, certain subsidiaries of Covanta Energy Corporation
    as guarantors, various lenders, Goldman Sachs Credit Partners
    L.P., as Sole Lead Arranger, Sole Book Runner and Sole
    Syndication Agent, Administrative Agent and Collateral Agent,
    JPMorgan Chase Bank, as Co-Documentation Agent, Revolving
    Issuing Bank and a Funded LC Issuing Bank, UBS Securities LLC,
    as Co-Documentation Agent, UBS AG, Stamford Branch, as a Funded
    LC Issuing Bank, and Calyon New York Branch, as Co-Documentation
    Agent (incorporated herein by reference to Exhibit 10.1 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated May 26, 2006 and filed with the SEC on May 31, 2006).10
.24

Amendment to Second Lien Credit and Guaranty Agreement, dated as
    of May 26, 2006, among Covanta Energy Corporation, Covanta
    Holding Corporation and the parties signatory thereto
    (incorporated herein by reference to Exhibit 10.2 of Covanta
    Holding Corporations Current Report on Form 8-K dated May
    26, 2006 and filed with the SEC on May 31, 2006).10
.25

Amendment and Limited Waiver to Intercreditor Agreement, dated
    as of May 26, 2006, among Covanta Energy Corporation, Goldman
    Sachs Credit Partners L.P., as Collateral Agent under the First
    Lien Credit Agreement, Credit Suisse, Cayman Islands Branch, as
    Administrative Agent for the Second Lien Credit Agreement and as
    Collateral Agent for the Parity Lien Claimholders (incorporated
    herein by reference to Exhibit 10.3 of Covanta Holding
    Corporations Current Report on Form 8-K dated May 26, 2006
    and filed with the SEC on May 31, 2006).10
.26*

Form of Covanta Holding Corporation Restricted Stock Award
    Agreement for Directors (incorporated herein by reference to
    Exhibit 10.1 of Covanta Holding Corporations Current
    Report on Form 8-K dated May 31, 2006 and filed with the SEC on
    June 2, 2006).10
.27*

Employment Agreement, dated as of August 17, 2006, among Covanta
    Holding Corporation, Covanta Energy Corporation and Mark A.
    Pytosh (incorporated herein by reference to Exhibit 10.1 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated August 17, 2006 and filed with the SEC on August 17, 2006).10
.28

Credit and Guaranty Agreement, dated as of February 9, 2007,
    among Covanta Energy Corporation, Covanta Holding Corporation,
    certain subsidiaries of Covanta Energy Corporation, as
    guarantors, the lenders party thereto, JPMorgan Chase Bank,
    N.A., as Administrative Agent, Collateral Agent, Revolving
    Issuing Bank and a Funded LC Issuing Bank, UBS AG, Stamford
    Branch, as a Funded LC Issuing Bank, Lehman Commercial Paper
    Inc. and Merrill Lynch, Pierce, Fenner & Smith
    Incorporated, as Syndication Agents, and Bank of America, N.A.
    and Barclays Bank PLC, as Documentation Agents (incorporated
    herein by reference to Exhibit 10.1 of Covanta Holding
    Corporations Current Report on Form 8-K dated February 9,
    2007 and filed with the SEC on February 15, 2007).10
.29

Pledge and Security Agreement, dated as of February 9, 2007,
    between each of Covanta Energy Corporation and the other
    grantors party thereto, and JPMorgan Chase Bank, N.A., as
    Collateral Agent (incorporated herein by reference to Exhibit
    10.2 of Covanta Holding Corporations Current Report on
    Form 8-K dated February 9, 2007 and filed with the SEC on
    February 15, 2007).10
.30

Pledge Agreement, dated as of February 9, 2007, between Covanta
    Holding Corporation and JPMorgan Chase Bank, N.A., as Collateral
    Agent (incorporated herein by reference to Exhibit 10.3 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated February 9, 2007 and filed with the SEC on February 15,
    2007).10
.31

Intercompany Subordination Agreement, dated as of February 9,
    2007, among Covanta Energy Corporation, Covanta Holding
    Corporation, certain subsidiaries of Covanta Energy Corporation,
    as Guarantor Subsidiaries, certain other subsidiaries of Covanta
    Energy Company, as Excluded Subsidiaries or Unrestricted
    Subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative
    Agent (incorporated herein by reference to Exhibit 10.4 of
    Covanta Holding Corporations Current Report on Form 8-K
    dated February 9, 2007 and filed with the SEC on February 15,
    2007). 137




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##### Table of Contents



Exhibit No.

Description10
.32

Form of Covanta Holding Corporation Indemnification Agreement,
    entered into with each of the following: David M. Barse, Ronald
    J. Broglio, Peter C.B. Bynoe, Linda J. Fisher, Richard L. Huber,
    Anthony J. Orlando, William C. Pate, Robert S. Silberman, Jean
    Smith, Clayton Yeutter, Samuel Zell, Mark A. Pytosh, Timothy J.
    Simpson, Thomas E. Bucks, John M. Klett and Seth Myones
    (incorporated herein by reference to Exhibit 10.1 of Covanta
    Holding Corporations Current Report on Form 8-K dated
    December 6, 2007 and filed with the SEC on December 12, 2007.12
.1

Computation of Ratio of Earnings to Fixed Charges.21
.1

List of Subsidiaries.23
.1

Consent of Independent Registered Public Accounting Firm of
    Covanta Holding Corporation and Subsidiaries: Ernst & Young
    LLP.31
.1

Certification of the Chief Executive Officer Pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002 (pursuant to Rule
    13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
    amended).31
.2

Certification of the Chief Financial Officer Pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002 (pursuant to Rule
    13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as
    amended).32
.1

Certification pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002 from the Chief Executive Officer and the Chief Financial
    Officer of Covanta Holding Corporation.     
    
    Not filed herewith, but incorporated herein by reference.*
    
    Management contract or compensatory plan or arrangement.  Regulation S-K,
  Exhibits:
  Financial Statement Schedules:
 138




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##### Table of Contents



SIGNATURES    
  By:
    /s/  Anthony
    J. Orlando   President and Chief Executive Officer
      Name

Title

Date/s/  Anthony
    J. OrlandoAnthony
    J. Orlando

President and Chief Executive Officer and Director (Principal
    Executive Officer)

March 2, 2009/s/  Mark
    A. PytoshMark
    A. Pytosh

Executive Vice President and Chief Financial Officer (Principal
    Financial Officer)

March 2, 2009/s/  Thomas
    E. BucksThomas
    E. Bucks

Vice President and Chief Accounting Officer (Principal
    Accounting Officer)

March 2, 2009/s/  Samuel
    ZellSamuel
    Zell

Chairman of the Board

March 2, 2009/s/  David
    M. BarseDavid
    M. Barse

Director

March 2, 2009/s/  Ronald
    J. BroglioRonald
    J. Broglio

Director

March 2, 2009/s/  Peter
    C. B. BynoePeter
    C. B. Bynoe

Director

March 2, 2009/s/  Linda
    J. FisherLinda
    J. Fisher

Director

March 2, 2009/s/  Richard
    L. HuberRichard
    L. Huber

Director

March 2, 2009/s/  William
    C. PateWilliam
    C. Pate

Director

March 2, 2009/s/  Robert
    S. SilbermanRobert
    S. Silberman

Director

March 2, 2009/s/  Jean
    SmithJean
    Smith

Director

March 2, 2009/s/  Clayton
    YeutterClayton
    Yeutter

Director

March 2, 2009  139