Waste Management 2007 Annual Report Download

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WASTE MANAGEMENT, INC. 2007 ANNUAL REPORT
Doing

Table of contents

  • Page 1
    WASTE MANAGEMENT, INC. 2007 ANNUAL REPORT Doing

  • Page 2
    ...to one employee who exemplifies the values of our Waste Management community. The 2008 recipient of this award is Terry Thomas, a driver trainer for Philadelphia Hauling in Bristol, Pennsylvania. In addition to his efforts to improve the lives of local children through outreach programs and personal...

  • Page 3
    ...354 collection operations, 341 transfer stations, 277 active landfill disposal sites, 16 waste-to-energy plants, 105 recycling plants, and 108 beneficial-use landfill gas projects. Message from the CEO Operations Review Financial Information Board of Directors Officers Corporate Information 2 5 31...

  • Page 4
    ... standardizing best practices in recruiting and training employees to make every encounter with every customer the best it can be. We've consolidated our call centers, added powerful new telephone technology, and equipped our customer service representatives with more information and more real-time...

  • Page 5
    ... our operating costs. We continued to evaluate pricing, customer by customer, to be certain that the rates we charge reflect the value of the services we provide. Although revenue declined slightly in 2007 due in part to the shedding of unprofitable business, earnings increased. Making environmental...

  • Page 6

  • Page 7
    ... to disposal sites. Not all the waste we collect goes into landfills or waste-to-energy facilities, however. We recycle it. Waste Management is the largest provider of comprehensive recycling services in North America, managing nearly 8 million tons of recyclable material annually, including paper...

  • Page 8
    ...gas from Waste Management's landfill in 6 As the largest provider of comprehensive recycling services in North America, we're making recycling as good for business as it is for the environment. It's working. Our recycling business continues to grow, and through our total recycling efforts, we save...

  • Page 9

  • Page 10
    ... to completely replace commercial natural gas with landfill gas in its cogeneration plant-the first university in the U.S. to undertake a project of this magnitude. Waste Management is the leading national waste company in the area of building and operating its own landfill gas plants. Seven new...

  • Page 11
    ...a multifaceted strategy and often, a complete closed loop-from collecting the waste to providing landfill gas for use as power in the customer's own facility. Waste Management UpstreamSM has received ISO 14001 certification by meeting rigorous international standards for environmental excellence. In...

  • Page 12

  • Page 13
    ... In 2007, Waste Management continued to deliver strong financial performance. We expanded our operating margins and increased earnings per share. We lowered our operating costs for the second consecutive year. Our return on invested capital grew. The company generated strong free cash flow and...

  • Page 14

  • Page 15
    ... optimized model standardizes best practices for the recruitment, hiring, and training of customer service representatives, as well as performance metrics, call center operating processes, and the implementation of new telephone technology. Our integrated information system allows a customer service...

  • Page 16
    ... safety, and cost savings, Waste Management's fleet is helping to drive improved customer service. To assess the effectiveness of our customer service and help identify opportunities for improvement, Waste Management has selected J.D. Power and Associates to conduct detailed surveys of our customers...

  • Page 17

  • Page 18
    ... developed the process that Waste Management will use to create an environment where all employees have the tools to do their jobs and know what is expected of them, believe they are contributing to the company's success, feel part of a team, and work with leaders and managers who provide timely...

  • Page 19

  • Page 20
    ..., safety is a continual focus across our entire organization. In 2007, our safety initiatives once again reached new levels of effectiveness. Waste Management's Total Recordable Injury Rate (TRIR), the measure used by the Occupational Safety and Health Administration (OSHA) to track work-related...

  • Page 21
    ...health and safety systems and processes only after a thorough Waste Management President and Chief Operating Officer verification and review process. Larry O'Donnell (center) frequently meets with employees According to OSHA statistics, throughout the company's more than 1,000 locations. the average...

  • Page 22

  • Page 23
    ...cleaning up is the nature of our business, our employees dedicate many hours of personal time to community cleanup efforts from coast to coast, year-round. When former President Jimmy Carter arrived to help kick off the 24th Annual Habitat for Humanity Jimmy Carter Work Project in Los Angeles, Waste...

  • Page 24
    ... an award in the reality program category at the 2007 Environmental Media Awards in Hollywood. Following the airing of the episode, Waste Management purchased the dresses and auctioned them to raise money for charities around the country. Waste Management employees frequently lend a helping hand to...

  • Page 25
    ... facilities, athletic fields, golf courses, and parks for the enjoyment of local citizens. Waste Management employees exemplify our core values in many ways through their contributions of time and money to worthy causes that benefit their communities. Whether they are walking to help raise...

  • Page 26

  • Page 27
    ... on the environment. As the nation's leading provider of waste and environmental services, we take care to help manage the 4.5 pounds of garbage each of us produces on the average day in a way that protects the environment and human health. In addition, we are North America's largest provider of...

  • Page 28
    ...national Think Green® strategy. Unique to this arrangement, the Rams will support the development of renewable energy by purchasing renewable energy credits from Waste Management's landfill gas-to-energy program in an amount equivalent to the energy needed to power the Edward Jones Dome for 10 home...

  • Page 29
    ... nation's largest fleets of heavy-duty trucks using the clean-burning fuel. The use of natural gas in place of diesel fuel and the installation of new pollution control devices have significantly reduced particulate emissions, NOx emissions, and greenhouse gas emissions. We also continue to increase...

  • Page 30

  • Page 31
    ... Business Forum in New York City. Speaking to an audience of leaders in business, government, academic, and environmental groups as well as the media, he announced Waste Management's major initiative to increase the value of the company's services to its customers while benefiting the environment...

  • Page 32
    ... employees, communities, customers, and, of course, the environment. In 2007, we accomplished what we set out to do. We achieved our financial objectives for the benefit of our shareholders, and we positioned our company for strength in the years ahead. We served our customers better by developing...

  • Page 33

  • Page 34
    ... Texas (Address of principal executive offices) 77002 (Zip code) Registrant's telephone number, including area code: (713) 512-6200 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Common Stock, $.01 par value Act. Act. New York...

  • Page 35
    ... of Operations ...Item 7A. Quantitative and Qualitative Disclosure About Market Risk...Item 8. Financial Statements and Supplementary Data ...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information...

  • Page 36
    ... revenue. We employed approximately 47,400 people as of December 31, 2007. Strategy Our Company's goals are targeted at serving five key stakeholders: our customers, our employees, the environment, the communities in which we work, and our shareholders. Our goals are: • To be the waste solutions...

  • Page 37
    ...By focusing on providing new environmentally responsible and sustainable solutions to our customers' waste problems, we believe we can create a competitive advantage across all of our lines of business. Our focus on operational excellence has provided us a foundation on which to build. We believe we...

  • Page 38
    .... The fees charged at disposal facilities, which are referred to as tipping fees, are based on several factors, including competition and the type and weight or volume of solid waste deposited. We also operate secure hazardous waste landfills in the United States. Under federal environmental laws...

  • Page 39
    ... of solid materials from liquids and chemical treatments that transform waste into inert materials that are no longer hazardous. Our hazardous waste landfills are sited, constructed and operated in a manner designed to provide longterm containment of waste. We also operate a hazardous waste facility...

  • Page 40
    ...of tons that can be placed in the future. Estimates of the amount of waste that can be placed in the future are reviewed annually by our engineers and are based on a number of factors, including standard engineering techniques and site-specific factors such as current and projected mix of waste type...

  • Page 41
    ... sites management group. In addition to the 277 active landfills we managed at December 31, 2007, we managed 187 closed landfills. Transfer. At December 31, 2007, we owned or operated 341 transfer stations in North America. We deposit waste at these stations, as do other waste haulers. The solid...

  • Page 42
    ... increase our revenues and increase the rebates we pay to our suppliers. Other. We provide in-plant services, in which employees of our Upstream organization work full-time inside our customers' facilities to provide full-service waste management solutions. Our vertically integrated waste management...

  • Page 43
    ... obtain disposal business may be limited in areas where other companies own or operate their own landfills, to which they will send their waste. We compete for collection accounts primarily on the basis of price and quality of services. Operating costs, disposal costs and collection fees vary widely...

  • Page 44
    ...(b) ...Total insurance policies ...Funded trust and escrow accounts(f) ...Financial guarantees(g) ...Total financial assurance ... (a) We use surety bonds and insurance policies issued by a wholly-owned insurance subsidiary, National Guaranty Insurance Company of Vermont, the sole business of which...

  • Page 45
    ... laws and regulations are administered by the EPA and various other federal, state and local environmental, zoning, transportation, land use, health and safety agencies in the United States and various agencies in Canada. Many of these agencies regularly examine our operations to monitor compliance...

  • Page 46
    ... sources are also subject to operating permit requirements under Title Vof the Clean Air Act. The Clean Air Act requires the EPA to review and revise the MACT standards applicable to municipal waste-to-energy facilities every five years. • The Occupational Safety and Health Act of 1970, as amended...

  • Page 47
    ...adoption of legislation affecting interstate transportation of waste at the state level could adversely affect our operations. Courts' interpretation of flow control legislation or the Supreme Court decisions also could adversely affect our solid waste management services. Many states, provinces and...

  • Page 48
    ... and strategies that we have implemented or planned to improve our margins and operating results. For example, except when prohibited by contract, we have implemented price increases and environmental fees, and we continue our fuel surcharge programs, all of which have increased our internal revenue...

  • Page 49
    ... health, safety, land use, zoning, transportation and related matters. Among other things, they may restrict our operations and adversely affect our financial condition, results of operations and cash flows by imposing conditions such as: • limitations on siting and constructing new waste disposal...

  • Page 50
    ... proposed federal regulations. Changing environmental regulations could require us to take any number of actions, including the purchase of emission allowances or installation of additional pollution control technology, and could make some operations less profitable, which could adversely affect our...

  • Page 51
    ... for landfill disposal and waste-to-energy services. Efforts by labor unions to organize our employees could increase our operating expenses. Labor unions constantly make attempts to organize our employees, and these efforts will likely continue in the future. Certain groups of our employees have...

  • Page 52
    ... states other than Montana and Wyoming. We also have operations in the District of Columbia, Puerto Rico and throughout Canada. Our principal property and equipment consist of land (primarily landfills and other disposal facilities, transfer stations and bases for collection operations), buildings...

  • Page 53
    ... cases is the life of the landfill. The following table provides certain information by Group regarding the 242 landfills owned or operated through lease agreements and a count, by Group, of contracted disposal sites as of December 31, 2007: Landfills Total Acreage(a) Permitted Acreage(b) Expansion...

  • Page 54
    ... and Issuer Purchases of Equity Securities. Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "WMI." The following table sets forth the range of the high and low per share sales prices for our common stock as reported on the NYSE: High Low 2006 First Quarter ...$35...

  • Page 55
    ...at date of payment into the common stock. The graph is presented pursuant to SEC rules and is not meant to be an indication of our future performance. Comparison of Cumulative Five Year Total Return $200 $150 $100 WASTE MANAGEMENT, INC. $50 S&P 500 INDEX DOW JONES WASTE & DISPOSAL SERVICES $0 2002...

  • Page 56
    ... Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(b) Period Total Number of Shares Purchased Average Price Paid per Share(a) October 1-31 ...November 1-30 ...December 1-31 ...Total ... 2,143,600 4,782,300 2,941,900 9,867,800 $37.74 $34.66 $34.01 $35.13 2,143...

  • Page 57
    ... Financial Statements included in this report and in previous annual reports we filed with the SEC. This information should be read together with those Consolidated Financial Statements and the notes thereto. The adoption of new accounting pronouncements, changes in certain accounting policies...

  • Page 58
    ...the notes to the Consolidated Financial Statements. Overview Our pricing program, cost control measures and fix-or-seek exit initiatives continued to provide earnings growth, margin expansion, and strong free cash flow in 2007. Despite volume losses resulting from pricing competition and an economic...

  • Page 59
    ... we may be able to make enhancements to our current system. Our plans to install a new revenue management system, to make enhancements to our current system and to address the issues with the software vendor may result in cost increases, each of which could negatively affect our future cash flow and...

  • Page 60
    ..., landfill gas collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized interest, on-site road construction and other capital infrastructure costs. Additionally, landfill development includes all land purchases for landfill 25

  • Page 61
    ...the landfill is located; • We have a legal right to use or obtain land to be included in the expansion plan; • There are no significant known technical, legal, community, business, or political restrictions or similar issues that could impair the success of such expansion; • Financial analysis...

  • Page 62
    ... routinely review and evaluate sites that require remediation, considering whether we were an owner, operator, transporter, or generator at the site, the amount and type of waste hauled to the site and the number of years we were associated with the site. Next, we review the same type of information...

  • Page 63
    ... environmental engineers or other service providers. Internally developed estimates are based on: • Management's judgment and experience in remediating our own and unrelated parties' sites; • Information available from regulatory agencies as to costs of remediation; • The number, financial...

  • Page 64
    ... and type of waste being disposed of at our disposal facilities. Fees charged at transfer stations are generally based on the volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Our Wheelabrator revenues are based...

  • Page 65
    ...line of business. Throughout 2007, we experienced increases in revenue due to yield on base business from our pricing excellence initiatives at our transfer stations and the municipal solid waste, special waste and construction and demolition waste streams at our landfills. The increases in transfer...

  • Page 66
    ... processing facility. The revenue declines in our collection businesses in 2006 were partially offset by increased disposal volumes in all of our geographic operating Groups through the first nine months of the year. Our special waste, municipal solid waste and construction and demolition waste...

  • Page 67
    ...-toPeriod Change 2005 Labor and related benefits ...$2,412 Transfer and disposal costs ...1,148 Maintenance and repairs ...1,079 Subcontractor costs ...902 Cost of goods sold ...769 Fuel...581 Disposal and franchise fees and taxes ...602 Landfill operating costs ...261 Risk management...217 Other...

  • Page 68
    ...Revenues generated by our fuel surcharge program are reflected as fuel yield increases within Operating Revenues. Disposal and franchise fees and taxes - In 2007, these cost declines were partially due to the resolution of a disposal tax matter in our Eastern Group, which resulted in the recognition...

  • Page 69
    ... labor strike in the New York City area. Also affecting the comparability of our "Other" operating expenses for 2007 as compared with 2006 were (i) $21 million of lease termination costs incurred during the first quarter of 2007 associated with the purchase of one of our independent power production...

  • Page 70
    ...$8 million for employee severance and benefit costs and approximately $2 million related to operating lease agreements. During the third quarter of 2005, we reorganized and simplified our organizational structure by eliminating certain support functions performed at the Group or Corporate office. We...

  • Page 71
    the Group and Corporate offices and increased the accountability of our Market Areas. We recorded $28 million of pre-tax charges in 2005 for costs associated with the implementation of the new structure, principally for employee severance and benefit costs. (Income) Expense from Divestitures, Asset ...

  • Page 72
    ... primarily to a strike in the New York City area. The Group incurred similar costs during the first quarter of 2005 for a labor strike in New Jersey, which decreased operating income for the year ended December 31, 2005 by approximately $9 million. Midwest - Positively affecting operating results in...

  • Page 73
    ...increased labor and related benefits costs; and (iv) restructuring charges. When comparing 2006 operating results with 2005, in addition to lower risk management costs, we experienced lower employee health and welfare plan costs, also as a result of our focus on controlling costs. These cost savings...

  • Page 74
    ... 45K credits on our contractual obligations associated with funding the facilities' losses. The IRS has not yet published the phase-out percentage that must be applied to Section 45K tax credits generated in 2007. Accordingly, we have used market information for oil prices to estimate that we expect...

  • Page 75
    ... our landfills and our investments in the two coal-based, synthetic fuel production facilities discussed in the Equity in net losses of unconsolidated entities section above. Pursuant to Section 45K of the Internal Revenue Code, these tax credits are phased-out if the price of oil exceeds an annual...

  • Page 76
    ... and administrative costs of our ongoing operations, we have cash requirements for: (i) the construction and expansion of our landfills; (ii) additions to and maintenance of our trucking fleet; (iii) construction, refurbishments and improvements at waste-to-energy and materials recovery facilities...

  • Page 77
    ... of cash on deposit, certificates of deposit, money market accounts, and investment grade commercial paper purchased with original maturities of three months or less. Short-term investments available for use - Periodically, we have invested in auction rate securities and variable rate demand notes...

  • Page 78
    ... as a result of new processes we implemented to assist our Market Areas with collections. The increases in our receivables balances, and resulting uses of cash in the Consolidated Statements of Cash Flows, in 2005 were primarily related to increased revenues. • Increased tax payments - We made...

  • Page 79
    ...the year-over-year increases in the per share dividend has been partially offset by a reduction in the number of our outstanding shares as a result of our share repurchase program. In December 2007, the Board of Directors announced that it expects future quarterly dividend payments will be $0.27 per...

  • Page 80
    ... excess tax benefits generated a total of $168 million of financing cash inflows during 2007, compared with $340 million in 2006 and $129 million in 2005. We believe the significant increase in stock option and warrant exercises in 2006 was due to the substantial increase in the market value of...

  • Page 81
    ... 10 to the Consolidated Financial Statements, that we do not expect to materially affect our current or future financial position, results of operations or liquidity. (e) In November 2007, we entered into a plan under SEC Rule 10b5-1 to effect market purchases of our common stock. The $99 million...

  • Page 82
    ...on our results of operations. However, management's estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities. New Accounting Pronouncements SFAS No. 157 - Fair Value Measurements In September 2006, the...

  • Page 83
    ... business, we are exposed to market risks, including changes in interest rates, Canadian currency rates and certain commodity prices. From time to time, we use derivatives to manage some portion of these risks. Our derivatives are agreements with independent counterparties that provide for payments...

  • Page 84
    ... the market price for our wastepaper and aluminum sales within a specified floor and ceiling. We record changes in the fair value of commodity derivatives not designated as hedges to earnings, as required. The fair value position of our commodity derivatives is not material to our financial position...

  • Page 85
    .... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2007 and 2006 ...Consolidated Statements of Operations for the Years Ended...

  • Page 86
    ...OVER FINANCIAL REPORTING Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of...

  • Page 87
    ... No. 109)" and FASB Staff Position No. FIN 48-1 "Definition of Settlement in FASB Interpretation No. 48." Additionally, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment." We also have audited, in accordance...

  • Page 88
    ... regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the...

  • Page 89
    ...Accounts payable...$ 656 Accrued liabilities ...1,151 Deferred revenues ...462 Current portion of long-term debt ...329 Total current liabilities ...2,598 Long-term debt, less current portion ...8,008 Deferred income taxes ...1,411 Landfill and environmental... income ...Treasury stock at cost, 130,163...

  • Page 90
    WASTE MANAGEMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31, 2007 2006 2005 Operating revenues...Costs and expenses: Operating ...Selling, general and administrative ...Depreciation and amortization ...Restructuring ...(Income) ...

  • Page 91
    ... Excess tax benefits associated with equity-based compensation ...Change in operating assets and liabilities, net of effects of acquisitions and divestitures: Receivables ...Other current assets ...Other assets...Accounts payable and accrued liabilities ...Deferred revenues and other liabilities...

  • Page 92
    ... instruments reclassified into earnings, net of taxes of $3 ...- Unrealized gain on marketable securities, net of taxes of $3 ...- Translation adjustment of foreign currency statements ...- Underfunded post-retirement benefit obligations, net of taxes of $3 ...- Other ...- Balance, December 31, 2006...

  • Page 93
    ...we believe make a positive difference for our environment, including recovering and processing the methane gas produced naturally by landfills into a renewable energy source. Our customers include commercial, industrial, municipal and residential customers, other waste management companies, electric...

  • Page 94
    ... using the provisions of SFAS No. 123, Accounting for Stock-Based Compensation for all unvested awards outstanding at the date of adoption. Under this transition method, the results of operations of prior periods have not been restated. Accordingly, we will continue to provide pro forma financial...

  • Page 95
    ... a desire to design our longterm incentive plans in a manner that creates a stronger link to operating and market performance, the Management Development and Compensation Committee approved a substantial change in the form of awards that we grant. Beginning in 2005, annual stock option grants were...

  • Page 96
    ... statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, stockholders' equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future...

  • Page 97
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Cash and cash equivalents Cash and cash equivalents consist primarily of cash on deposit, certificates of deposit, money market accounts, and investment grade commercial paper purchased with original maturities of three ...

  • Page 98
    ... gas collection systems (when required), demobilization and routine maintenance costs. These are costs incurred after the site ceases to accept waste, but before the landfill is certified as closed by the applicable state regulatory agency. These costs are accrued as an asset retirement obligation...

  • Page 99
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) each individual asset retirement obligation. The weighted-average rate applicable to our asset retirement obligations at December 31, 2007 is between 6.00% and 7.25%, the range of the credit-adjusted, risk-free discount ...

  • Page 100
    ...the landfill is located; • We have a legal right to use or obtain land to be included in the expansion plan; • There are no significant known technical, legal, community, business, or political restrictions or similar issues that could impair the success of such expansion; • Financial analysis...

  • Page 101
    ... environmental engineers or other service providers. Internally developed estimates are based on: • Management's judgment and experience in remediating our own and unrelated parties' sites; • Information available from regulatory agencies as to costs of remediation; • The number, financial...

  • Page 102
    ... December 31, 2006) until the expected time of payment and discount the cost to present value using a risk-free discount rate, which is based on the rate for United States treasury bonds with a term approximating the weighted average period until settlement of the underlying obligation. We determine...

  • Page 103
    ... We lease property and equipment in the ordinary course of our business. Our most significant lease obligations are for property and equipment specific to our industry, including real property operated as a landfill, transfer station or waste-to-energy facility and equipment such as compactors. Our...

  • Page 104
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Assets held-for-sale During our operations review processes, we, from time to time, identify under-performing operations. We assess these operations for opportunities to improve their performance. A possible conclusion ...

  • Page 105
    ... revenue bonds for the construction of collection and disposal facilities and for equipment necessary to provide waste management services. Proceeds from these arrangements are directly deposited into trust accounts, and we do not have the ability to use the funds in regular operating activities...

  • Page 106
    ...in the Statement of Cash Flows. Debt service funds - Funds are held in trust to meet future principal and interest payments required under certain of our tax-exempt project bonds. Derivative financial instruments We use derivative financial instruments to manage our risk associated with fluctuations...

  • Page 107
    ..., revenue typically is recognized as waste is collected, tons are received at our landfills or transfer stations, recycling commodities are delivered or as kilowatts are delivered to a customer by a waste-to-energy facility or independent power production plant. We bill for certain services prior...

  • Page 108
    .... This dividend payment was reflected as "Cash dividends" in our Consolidated Statement of Cash Flows for the year ended December 31, 2006. 4. Landfill and Environmental Remediation Liabilities Liabilities for landfill and environmental remediation costs are presented in the table below (in millions...

  • Page 109
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The changes to landfill and environmental remediation liabilities for the years ended December 31, 2006 and 2007 are as follows (in millions): Landfill Environmental Remediation December 31, 2005 ...Obligations incurred...

  • Page 110
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Property and Equipment Property and equipment at December 31 consisted of the following (in millions): 2007 2006 Land ...Landfills ...Vehicles ...Machinery and equipment ...Containers ...Buildings and improvements ...

  • Page 111
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Landfill operating permits are not presented above and are recognized on a combined basis with other landfill assets and amortized using our landfill amortization method. Amortization expense for other intangible assets ...

  • Page 112
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) provider generally converts into a term loan for the remaining term of the respective agreement or facility. Through December 31, 2007, we had not experienced any unreimbursed draws on letters of credit. As of December ...

  • Page 113
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) expenditures for landfill construction and development, equipment, vehicles and facilities in support of our operations. Proceeds from bond issues are held in trust until such time as we incur qualified expenditures, at ...

  • Page 114
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Debt Covenants Our revolving credit facility and certain other financing agreements contain financial covenants. The most restrictive of these financial covenants are contained in our revolving credit facility. The ...

  • Page 115
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) accumulated fair value adjustments from interest rate swap agreements by underlying debt instrument category at December 31 (in millions): Increase (decrease) in carrying value of debt due to hedge accounting for ...

  • Page 116
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. Income Taxes Provision for (benefit from) income taxes Our provision for (benefit from) income taxes consisted of the following (in millions): Years Ended December 31, 2007 2006 2005 Current: Federal ...$412 State ...

  • Page 117
    ...of crude oil exceeds an annual average price threshold determined by the Internal Revenue Service. The IRS has not yet published the phase-out percentage that must be applied to Section 45K tax credits generated in 2007. Accordingly, we have used market information for oil prices to estimate that we...

  • Page 118
    ... 31, 2007, 2006 and 2005, respectively. The tax credits generated by our landfills are provided by our Renewable Energy Program, under which we develop, operate and promote the beneficial use of landfill gas. Our recorded taxes include benefits of $13 million, $24 million, and $34 million for...

  • Page 119
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) additional $12 million of our accumulated foreign earnings resulting in an increase in tax expense of $3 million. No additional foreign earnings were repatriated during 2007. At December 31, 2007, remaining unremitted ...

  • Page 120
    ... settlements or the expiration of the applicable statute of limitations period. 9. Employee Benefit Plans Defined contribution plans - Our Waste Management Retirement Savings Plan covers employees (except those working subject to collective bargaining agreements, which do not provide for coverage...

  • Page 121
    ... insurance policies and have established trust funds and issued financial guarantees to support tax-exempt bonds, contracts, performance of landfill closure and post-closure requirements, environmental remediation, and other obligations. Historically, our revolving credit facilities have been used...

  • Page 122
    ... for additional information related to this agreement. • Fuel Supply - We have purchase agreements expiring at various dates through 2011 that require us to purchase minimum amounts of waste and conventional fuels at our independent power production plants. These fuel supplies are used to produce...

  • Page 123
    ... of the actual number of tons placed at the facilities. • Waste Paper - We are party to a waste paper purchase agreement that requires us to purchase a minimum number of tons of waste paper. The cost per ton we pay is based on market prices plus the cost of delivery to our customers. We currently...

  • Page 124
    ...costs may increase in the future as a result of legislation or regulation. However, we generally do not believe that increases in environmental regulation negatively affect our business, because such regulations increase the demand for our services, and we have the resources and experience to manage...

  • Page 125
    ...been dropped as to WMI, its officers and directors. The case is ongoing with respect to WM Holdings and others, and WM Holdings intends to defend itself vigorously. There are two separate wage and hour lawsuits pending against us in California, each seeking class certification. Both actions make the...

  • Page 126
    ... class actions, on the basis of having owned, operated or transported waste to a disposal facility that is alleged to have contaminated the environment or, in certain cases, on the basis of having conducted environmental remediation activities at sites. Some of the lawsuits may seek to have us pay...

  • Page 127
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) obligations in connection with current actions involving former officers of the Company or its subsidiaries or other actions or proceedings that may be brought against its former or current officers, directors and ...

  • Page 128
    ...$28 million for costs associated with the implementation of the new structure. These charges included $25 million for employee severance and benefit costs, $1 million related to abandoned operating lease agreements and $2 million related to consulting fees incurred to align our sales strategy to our...

  • Page 129
    ... charge for revenue management system software that had previously been under development. The remaining impairment charges recognized in 2005 were largely related to the impairment of a landfill in our Eastern Group as a result of a change in our expectations for future expansions. Other - In...

  • Page 130
    ... the weighted average daily market price of our common stock during the valuation period times the number of shares we repurchased, or $16 million. We elected to make the required settlement payment in cash. In November 2007, we entered into a plan under SEC Rule 10b5-1 to effect market purchases of...

  • Page 131
    ..., including our net earnings, financial condition, cash required for future business plans and other factors the Board may deem relevant. 15. Stock-Based Compensation Employee Stock Purchase Plan We have an Employee Stock Purchase Plan under which employees that have been employed for at least 30...

  • Page 132
    ... required by SFAS No. 123(R) for share-based payments and a desire to design our long-term incentive plans in a manner that creates a stronger link to operating and market performance, the Management Development and Compensation Committee approved a substantial change in the form of awards that...

  • Page 133
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (a) The total fair market value of the shares issued upon the vesting of restricted stock units during the years ended December 31, 2007 and 2006 were $14 million and $7 million, respectively. This amount was not ...

  • Page 134
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock options - Prior to 2005, stock options were the primary form of equity-based compensation we granted to our employees. On December 16, 2005, the Management Development and Compensation Committee of our Board of ...

  • Page 135
    ...MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Non-Employee Director Plans Pursuant to our 2003 Directors' Deferred Compensation Plan, a portion of the cash compensation that our directors would otherwise receive is deferred until after their termination from board service...

  • Page 136
    ... - On June 30, 2000, two limited liability companies were established to purchase interests in existing leveraged lease financings at three waste-to-energy facilities that we operate under an agreement with the owner. John Hancock Life Insurance Company has a 99.5% ownership interest in one of the...

  • Page 137
    ... landfills), transfer, waste-to-energy facilities and independent power production plants that are managed by Wheelabrator, recycling services and other services to commercial, industrial, municipal and residential customers throughout the United States and in Puerto Rico and Canada. The operations...

  • Page 138
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Our third quarter 2005 reorganization, as discussed in Note 11, also resulted in the centralization of certain Group office functions. The administrative costs associated with these functions were included in the ...

  • Page 139
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Summarized financial information concerning our reportable segments for the respective years ended December 31 is shown in the following table (in millions): Gross Operating Revenues Intercompany Operating Revenues(d) ...

  • Page 140
    ..., tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills. Income from operations for "Corporate and other" also includes costs associated with our longterm incentive program and managing our international and non-solid waste...

  • Page 141
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) delivered to our operating groups more than offset the quantity of new fleet purchases initiated by our Corporate and Other segment. (i) The reconciliation of total assets reported above to "Total assets" in the ...

  • Page 142
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (a) In addition to the revenue generated by WMRA, we have included recycling revenues generated within our four geographic operating Groups, in-plant services, methane gas operations, Port-O-Let» services and street ...

  • Page 143
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the unaudited quarterly results of operations for 2007 and 2006 (in millions, except per share amounts): First Quarter Second Quarter Third Quarter Fourth Quarter 2007 Operating revenues ...

  • Page 144
    ...-based synthetic fuel production facilities. The credits are phased-out if the price of crude oil exceeds an annual average price threshold as determined by the U.S. Internal Revenue Service. On a quarterly basis, we develop our estimate of the phase-out of credits using market information for crude...

  • Page 145
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 22. Condensed Consolidating Financial Statements WM Holdings has fully and unconditionally guaranteed all of WMI's senior indebtedness. WMI has fully and unconditionally guaranteed...term debt ...Accounts payable and other...

  • Page 146
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING BALANCE SHEETS - (Continued) December 31,...' EQUITY Current liabilities: Current portion of long-term debt ...$ Accounts payable and other current liabilities ...Long-term debt, less current portion...

  • Page 147
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS WMI WM Holdings Non-Guarantor Subsidiaries Eliminations Consolidated Year Ended December 31, 2007 Operating revenues ...$ - Costs and expenses ...- Income from operations...

  • Page 148
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS WMI WM Holdings Non-Guarantor Subsidiaries Eliminations Consolidated Year Ended December 31, 2007 Cash flows from operating activities: Net income ...Equity in earnings ...

  • Page 149
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (Continued) WMI WM Holdings Non-Guarantor Subsidiaries Eliminations Consolidated Cash flows from financing activities: New borrowings ...Debt repayments ...Common stock...

  • Page 150
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 23. New Accounting Pronouncements (Unaudited) SFAS No. 157 - Fair Value Measurements In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for ...

  • Page 151
    ...that the Company's disclosure controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the SEC within required time periods. Internal Controls Over Financial Reporting Management's report...

  • Page 152
    ...executive officers. The Broad-Based Employee Plan allows for the granting of equity awards on such terms and conditions as the Management Development and Compensation Committee may decide; provided, that the exercise price of options may not be less than 100% of the fair market value of the stock on...

  • Page 153
    .... Item 14. Principal Accounting Fees and Services. The information required by this Item is set forth in the 2008 Proxy Statement and is incorporated herein by reference. PART IV Item 15. Exhibits, Financial Statement Schedules (a)(1) Consolidated Financial Statements: Reports of Independent...

  • Page 154
    ..., thereunto duly authorized. WASTE MANAGEMENT, INC. By: DAVID P. STEINER David P. Steiner Chief Executive Officer and Director /s/ Date: February 18, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of...

  • Page 155
    ... audits also included the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when...

  • Page 156
    ...to operations held for sale, and reclasses among reserve accounts. (b) Includes reserves for doubtful accounts receivable and notes receivable. (c) Included in accrued liabilities in our Consolidated Balance Sheets. These accruals represent employee severance and benefit costs and transitional costs...

  • Page 157
    ... D-1 to the Proxy Statement for the 2004 Annual Meeting of Stockholders]. - 1997 Employee Stock Purchase Plan [Incorporated by reference to Appendix C to the Proxy Statement for the 2006 Annual Meeting of Stockholders]. - Waste Management, Inc. 409A Deferral Savings Plan. [Incorporated by reference...

  • Page 158
    ... Facility Credit Agreement by and between Waste Management of Canada Corporation (as Borrower), Waste Management, Inc. and Waste Management Holdings, Inc. (as Guarantors), BNP Paribas Securities Corp. and Scotia Capital (as Lead Arrangers and Book Runners) and Bank of Nova Scotia (as Administrative...

  • Page 159
    ... Northern Capital DAVID P. STEINER Chief Executive Officer Waste Management, Inc. JOHN C. POPE (A, C, N) Non-Executive Chairman of the Board Waste Management, Inc. THOMAS H. WEIDEMEYER (C, N) Retired Senior Vice President and Chief Operating Officer United Parcel Service, Inc. FRANK M. CLARK, JR...

  • Page 160
    ... Chief Operating Officer DAVID A. AARDSMA Senior Vice President, Sales and Marketing LYNN M. CADDELL Senior Vice President and Chief Information Officer BARRY H. CALDWELL Senior Vice President, Government Affairs and Corporate Communications BRETT W. FRAZIER Senior Vice President, Eastern Group JEFF...

  • Page 161
    ... beneficial owners. The annual certification required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual was submitted by the Company on May 8, 2007. TRANSFER AGENT AND REGISTRAR BNY Mellon Shareowner Services 480 Washington Boulevard Jersey City, New Jersey 07310 (800) 969...

  • Page 162
    1001 Fannin, Suite 4000 • Houston, Texas 77002 www.wm.com