Waste Management 2008 Annual Report Download

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A company you can Count On.
2 0 0 8 A n n u a l R ep o r t

Table of contents

  • Page 1
    A company you can Count On. 2008 Annual Repor t

  • Page 2
    ... the company served nearly 20 million municipal, commercial, industrial, and residential customers through a network of 367 collection operations, 355 transfer stations, 273 active landfill disposal sites, 16 waste-to-energy plants, 104 recycling plants, and 111 beneficial-use landfill gas projects.

  • Page 3
    ... change. Times that demand proof of discipline, a solid financial foundation, and a sound strategy focused on continuing improvement. Those times are here. And Waste Management is prepared to meet the challenge. We have worked hard to become a company that our customers, employees, communities, and...

  • Page 4
    ... to more efficiently support the new field operations and expect these combined actions to provide annualized savings of more than $100 million. We also see customers increasingly turning to us for assistance with their sustainability practices and with reducing costs. As the leading company in our...

  • Page 5
    ... eight new landfill-gas-to-energy plants and launched a new business to build these plants for third parties like municipalities and other waste companies. We also are pursuing a number of waste-to-energy projects in the U.S. and overseas. In 2008, Waste Management was again included on the list of...

  • Page 6
    A company you can count on To deliver strong financial results. 4 2008 ANNUAL REPORT

  • Page 7
    ...(declared quarterly) $ 1.25 chemical plants to healthcare, office buildings, and others. We plan to target customer segments that can best benefit from the range of services and superior value that Waste Management offers. We also developed a new tool to help manage operational costs and fuel usage...

  • Page 8
    ... our call center functionality and consolidated call centers, taking advantage of efficiencies of scale in training, staffing, internal communication, and management. Our integrated system provides customer service representatives with added information to handle customer calls more effectively and...

  • Page 9
    A company you can count on To adapt to the changing needs of our customers. 2008 ANNUAL REPORT 7

  • Page 10
    A company you can count on Mesquite Creek Landfill New Braunfels, Texas To create a safe environment for our employees and our communities. 8 2008 ANNUAL REPORT

  • Page 11
    ...only program is designed to test new processes for corporate applicants who have demonstrated a strong commitment to employee safety and health. Only six companies in the United States have achieved VPP Corporate Pilot certification. Our focus on driver safety continues. In addition to the effective...

  • Page 12
    ... 2008, every Waste Management location had begun the process of more effectively utilizing employee input in decision-making and problem-solving. In locations where the program has been completed, our employee turnover rates are lower and our employees work more safely and productively. Simply put...

  • Page 13
    ...From New England to California, from Puerto Rico to Canada, our familiar green trucks are seen daily on thousands of routes, operating from 367 collection facilities to collect approximately 66 million tons of solid waste a year from residential, municipal, commercial, and industrial customers. Our...

  • Page 14
    A company you can count on Covel Gardens Landfill San Antonio, Texas To use waste to create enough energy to power 1 million homes. 12 2008 ANNUAL REPORT

  • Page 15
    ... electricity or pipe it to industrial customers for use as an alternative fuel. We have since developed more than 100 landfill gas projects for businesses and public utilities. We are the only national waste company that builds and operates its own landfill gas plants. 2008 ANNUAL REPORT 13

  • Page 16
    ...the greenhouse and a support facility. The process saves fuel costs for the greenhouse and harnesses energy that would otherwise be unproductive. WASTE-TO-ENERGY. Another way that we help Protection Agency (EPA), the power produced by waste-to-energy plants has less environmental impact than almost...

  • Page 17
    A company you can count on Wheelabrator Technologies Inc. Baltimore, Maryland To generate power from trash. 2008 ANNUAL REPORT 15

  • Page 18
    A company you can count on Elk Ridge Recycling Center Baltimore, Maryland To extend the benefits of recycling. 16 2008 ANNUAL REPORT

  • Page 19
    ... businesses and municipalities. Waste Management has been a pioneer in the development of single-stream recycling. RECYCLING BY MAIL. Waste Management offers commercial and industrial customers a convenient and safe way to recycle used fluorescent bulbs by mail through the WM LampTracker® program...

  • Page 20
    ...feedstock that can be used to make other products. Alternative technologies for managing organic materials are in increasing demand by some customers, and we plan to test several new organics-processing technologies in 2009 that will serve as a platform for future strategies. 18 2008 ANNUAL REPORT

  • Page 21
    A company you can count on Riverbend Landfill McMinnville, Oregon To manage waste responsibly. 2008 ANNUAL REPORT 19

  • Page 22
    A company you can count on To work with customers to provide solutions. 20 2008 ANNUAL REPORT

  • Page 23
    ... at the construction site. THE GREEN SQUADSM. In 2008, Waste Management Upstream group has provided comprehensive waste solutions-ranging from lean manufacturing to zero waste-that help customers achieve their recycling, environmental, and sustainability goals. By working closely with customers to...

  • Page 24
    A company you can count on To drive the use of clean-burning alternative fuels. 22 2008 ANNUAL REPORT

  • Page 25
    ... benefit customers. The advantages of building green reach beyond the intended environmental aspects. A recent study reported that for green construction projects, an average increase of 2.5 percent in building costs resulted in an average of 30 percent savings in operating costs. W aste Management...

  • Page 26
    A company you can count on Atascocita Landfill Humble, Texas To protect the environment. 24 2008 ANNUAL REPORT

  • Page 27
    ... by about 80 percent for these trucks. In 2008, Waste Management announced a joint venture with Linde, a leading global gases and engineering company, to build the world's largest facility to convert landfill gas into clean vehicle fuel. When the facility begins operating in 2009, it is expected to...

  • Page 28
    ... participated in local Habitat construction projects. • Waste Management continued as a national sponsor of Keep America Beautiful, the country's largest volunteer-based community action and education organization. The Great American Cleanup is one of its many programs that 26 2008 ANNUAL REPORT

  • Page 29
    A company you can count on Covel Gardens Landfill San Antonio, Texas To invest in our communities. 2008 ANNUAL REPORT 27

  • Page 30
    ...personal development. • By transforming a closed landfill site in Illinois into a sports complex, Waste Management provided Antioch High School with its first-ever "home field" for a number of sports. Waste Management also constructed a 360-kilowatt cogeneration plant for electricity at the school...

  • Page 31
    2008 Financial Information

  • Page 32
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  • Page 33
    ..., 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...

  • Page 34
    ... Operations ...Item 7A. Quantitative and Qualitative Disclosures 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 35
    ... to the Consolidated Financial Statements. Our principal executive offices are located at 1001 Fannin Street, Suite 4000, Houston, Texas 77002. Our telephone number at that address is (713) 512-6200. Our website address is http://www.wm.com. Our annual reports on Form 10-K, quarterly reports on Form...

  • Page 36
    ... in administration, financial control and analysis, human resources, customer service, pricing and business strategy, safety, fleet services, and community and municipal relations. We have found that our larger Market Areas generally were able to achieve efficiencies through economies of scale that...

  • Page 37
    ...13,363 Total ... The services we provide include collection, landfill (solid and hazardous waste landfills), transfer, Wheelabrator (waste-to-energy facilities and independent power production plants), recycling and other services, as described below. The following table shows revenues (in millions...

  • Page 38
    ... of water pollution, and are operated under prescribed procedures. A landfill must be maintained to meet federal, state or provincial, and local regulations. The operation and closure of a solid waste landfill includes excavation, construction of liners, continuous spreading and compacting...

  • Page 39
    ... significantly affect our revenues, the rebates we pay to our suppliers and our operating income and margins. 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...

  • Page 40
    ... lamp recycling and healthcare solutions services. From time to time, we are also contracted to construct waste facilities on behalf of third parties. Competition The solid waste industry is very competitive. Competition comes from a number of publicly held solid waste companies, private solid waste...

  • Page 41
    ... entity(b) ...Total insurance policies ...Funded trust and escrow accounts(e) ...Financial guarantees(f) ...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...

  • Page 42
    ... Consolidated Financial Statements. Regulation Our business is subject to extensive and evolving federal, state or provincial and local environmental, health, safety and transportation laws and regulations. These laws and regulations are administered by the U.S. EPA and various other federal, state...

  • Page 43
    ... transportation vehicles (including waste collection vehicles). In 1996 the EPA issued new source performance standards and emission guidelines controlling landfill gases from new and existing large landfills. The regulations impose limits on air emissions from large municipal solid waste landfills...

  • Page 44
    ...flow control legislation or the Supreme Court decisions also could adversely affect our solid and hazardous waste management services. Many states, provinces and local jurisdictions have enacted "fitness" laws that allow the agencies that have jurisdiction over waste services contracts or permits to...

  • Page 45
    ... business and financial statements for 2009 and beyond. General economic conditions can adversely affect our revenues and our operating margins. Our business is affected by changes in national and general economic factors that are outside of our control, including consumer confidence, interest rates...

  • Page 46
    ...adverse effect on our financial condition, results of operations and cash flows. In the ordinary course of our business, we have in the past, and may in the future, become involved in a variety of legal and administrative proceedings relating to land use and environmental laws and regulations. These...

  • Page 47
    ...rates and volumes; • limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste; or • mandates regarding the disposal of solid waste, including requirements to recycle rather than landfill certain waste streams. Regulations affecting the siting, design...

  • Page 48
    ...broad range of insurance coverages that are customary for a company our size. We use these programs to mitigate risk of loss, thereby allowing us to manage our self-insurance exposure associated with claims. The inability of our insurers to meet their commitments in a timely manner and the effect of...

  • Page 49
    ... gas recovery, waste-to-energy and independent power production plant operations. The marketing and sales of energy related products by our landfill gas and waste-to-energy operations are generally pursuant to long-term sales agreements. Therefore, market volatility does not cause our quarterly...

  • Page 50
    ... 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 consists of land (primarily landfills and other disposal facilities, transfer stations and bases for collection operations), buildings...

  • Page 51
    ... facilities ...Independent power production plants ... 212 27 34 273 355 98 6 16 5 216 26 35 277 341 99 6 16 5 The following table provides certain information by Group regarding the 239 landfills owned or operated through lease agreements and a count, by Group, of contracted disposal sites as of...

  • Page 52
    ... 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 2007 First Quarter ...Second Quarter...

  • Page 53
    ...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 $150 $100 $50 WASTE MANAGEMENT, INC. S&P 500 INDEX DOW JONES WASTE & DISPOSAL SERVICES $0 2003 2004...

  • Page 54
    ... 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 55
    ... included in this report. For disclosures associated with the impact of the adoption of new accounting pronouncements and changes in our accounting policies on the comparability of this information, see Note 2 of the Consolidated Financial Statements. Item 7. Management's Discussion and Analysis...

  • Page 56
    ... business development initiatives, which are focused on gaining new customers and entering new lines of business that are complementary to our core operations. These are costs that we believe are necessary to position Waste Management as a leading environmental solutions provider. As is our practice...

  • Page 57
    ... and breach of contract. The lawsuit relates to our 2005 software license from SAP for a waste and recycling revenue management system and agreement for SAP to implement the software on a fixed-fee basis. We have been assigned a trial date in October 2009. As we continue to assess the alternatives...

  • Page 58
    ... engineering, capitalized interest, on-site road construction and other capital infrastructure costs. Additionally, landfill development includes all land purchases for landfill footprint and required landfill buffer property. The projection of these landfill costs is dependent, in part, on future...

  • Page 59
    ... within the normal application and processing time periods for approvals in the jurisdiction in which 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...

  • Page 60
    ...using our internal resources or by third-party 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...

  • Page 61
    ... Wheelabrator and WMRA Groups. These six operating Groups are our reportable segments. Shown below (in millions) is the contribution to revenues during each year provided by our six operating Groups and our Other waste services: Years Ended December 31, 2008 2007 2006 Eastern ...Midwest ...Southern...

  • Page 62
    ... landfill operations consist of tipping fees, which are generally based on the weight, volume 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...

  • Page 63
    ...base business from our pricing excellence initiative at our transfer stations and the municipal solid waste streams at our landfills. The increases in transfer station revenues have been the most significant in the Eastern portion of the United States. At our landfills, municipal solid waste revenue...

  • Page 64
    ... declines in this business that we attribute to the sluggish economy. Declines in revenue due to lower third-party volumes in our transfer station operations have been the most notable in our Eastern and Southern Groups and can generally be attributed to the effects of pricing and sluggish economic...

  • Page 65
    ... transfer station operations were the most notable in our Eastern Group and were generally due to the effects of pricing. We also experienced declines in third-party revenue at our landfills due to reduced disposal volumes. The most significant declines were in our construction and demolition waste...

  • Page 66
    ...our pricing program and shedding unprofitable business; and (iii) divestitures. We continue to manage our fixed costs and reduce our variable costs as we experience volume declines, and have achieved significant cost savings as a result. These cost decreases have benefited each of the operating cost...

  • Page 67
    ... Los Angeles, California. • Changes in risk-free interest rates - We recognized a $33 million charge to landfill operating costs during the fourth quarter of 2008 due to a sharp decline in United States Treasury rates, which are used to estimate the present value of our environmental remediation...

  • Page 68
    ... claim periods. Other • In 2007, we incurred $21 million of lease termination costs associated with the purchase of one of our independent power production plants that had previously been operated through a lease agreement. • In 2008 and 2007, we had an increase in gains recognized on the sales...

  • Page 69
    ... the support and development of the SAP waste and recycling revenue management system, which we discontinued development of in early 2008. For information related to the current status of our pending litigation against SAP, refer to Note 10 of our Consolidated Financial Statements. Provision...

  • Page 70
    ... (ii) landfill expansions that resulted in reduced or deferred final capping costs; or (iii) completed final capping construction that cost less than anticipated. Restructuring Management continuously reviews our organization to determine if we are operating under the most advantageous structure. As...

  • Page 71
    ... to pricing competition, the significant downturn in construction and the slowdown of the general economy; and (iii) our continued focus on controlling costs through operating efficiencies. For the first nine months of 2008, our Groups also experienced an unfavorable effect on operating income...

  • Page 72
    ... the first quarter of 2007 for employee severance and benefit costs; • reduced risk management costs in 2008, which is attributable to reduced actuarial projections of claim losses for workers' compensation and auto and general liability claims; and • higher employee healthcare coverage expenses...

  • Page 73
    ... on the support and development of our information technology, people and pricing strategic initiatives; • increased labor and related benefits costs; and • restructuring charges recognized during the first quarter of 2007. Other Components of Net Income The following table summarizes the...

  • Page 74
    ... 2006. Refer to Note 8 for additional information related to the impact of these investments. Minority Interest On December 31, 2003, we consolidated two limited liability companies that own three waste-to-energy facilities operated by our Wheelabrator Group as a result of our implementation of FIN...

  • Page 75
    ...a result of a decrease in our effective state tax rate or (ii) the expected utilization of state net operating loss and credit carryforwards. Landfill and Environmental Remediation Discussion and Analysis We owned or operated 267 solid waste and six hazardous waste landfills at December 31, 2008 and...

  • Page 76
    ...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 77
    ...on-site construction projects. When a landfill we own or operate (i) reaches its permitted waste capacity; (ii) is permanently capped; and (iii) receives certification of closure from the applicable regulatory agency, management of the site, including remediation activities, is generally transferred...

  • Page 78
    ...SFAS No. 143, Accounting for Asset Retirement Obligations and its Interpretations, and are discussed in Note 3 of our Consolidated Financial Statements. We also have liabilities for the remediation of properties that have incurred environmental damage, which generally was caused by operations or for...

  • Page 79
    ... changing business conditions or new opportunities. In addition to our working capital needs for the general 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...

  • Page 80
    ... 3 to the Consolidated Financial Statements for additional discussion. Debt - We use long-term borrowings in addition to the cash we generate from operations as part of our overall financial strategy to support and grow our business. We primarily use senior notes and tax-exempt bonds to borrow on...

  • Page 81
    ...in place to support our liquidity and financial assurance needs. The following table summarizes our outstanding letters of credit (in millions) at December 31 categorized by facility: 2008 2007 Revolving credit facility(a) ...Letter of credit facility(b) ...Letter of credit and term loan agreements...

  • Page 82
    ... market rates. • Accounts payable processes - In 2008, we began various initiatives to improve our working capital management, including reviewing our accounts payable process to ensure vendor payments are made on a basis that results in more optimal cash management. The changes made to the timing...

  • Page 83
    ... $184 million of cash in 2007, compared with $122 million during 2006. We used proceeds from the sale of our short-term investments to provide cash that we used to fund our common stock repurchases, dividend payments and debt repayments, which are discussed below. We did not hold any short-term...

  • Page 84
    ... of each yearend, which is generally attributable to the timing of cash deposits. Summary of Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2008 and the anticipated effect of these obligations on our liquidity in future years (in millions): 2009...

  • Page 85
    ... Note 10 to the Consolidated Financial Statements. Our third-party guarantee arrangements are generally established to support our financial assurance needs and landfill operations. These arrangements have not materially affected our financial position, results of operations or liquidity during the...

  • Page 86
    ... generally has not had, and in the near future is not expected to have, any material adverse effect 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...

  • Page 87
    ... 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 88
    ... Data. 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, 2008 and 2007 ...Consolidated Statements of Operations for the Years...

  • Page 89
    ... consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States; and (iii) the safeguarding of assets from unauthorized use or disposition. We conducted an evaluation of the effectiveness of our internal control over financial...

  • Page 90
    ... the standards of the Public Company Accounting Oversight Board (United States), Waste Management, Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of...

  • Page 91
    ... respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Waste Management, Inc...

  • Page 92
    ... liabilities: Accounts payable...$ 716 Accrued liabilities ...1,034 Deferred revenues ...451 Current portion of long-term debt ...835 Total current liabilities ...3,036 Long-term debt, less current portion ...7,491 Deferred income taxes ...1,484 Landfill and environmental remediation liabilities...

  • Page 93
    WASTE MANAGEMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended December 31, 2008 2007 2006 Operating revenues...Costs and expenses: Operating ...Selling, general...474 325 $ 1,149 $ $ $ 2.13 2.10 0.66 See notes to Consolidated Financial Statements. 59

  • Page 94
    ... cash used in financing activities ...Effect of exchange rate changes on cash and cash equivalents ...Increase (decrease) in cash and cash equivalents ...Cash and cash equivalents at beginning of year ...Cash and cash equivalents at end of year ...See notes to Consolidated Financial Statements. 60...

  • Page 95
    ... ...- Unrealized loss on marketable securities, net of taxes of $3 ...- Translation adjustment of foreign currency statements ...- Change in funded status of defined benefit plan liabilities, net of taxes of $3...- Cumulative effect of change in accounting principle ...- Other ...- Balance, December...

  • Page 96
    ... not materially affect our consolidated financial position, results of operations or cash flows. Refer to Note 17 for information about our fair value measurements. SFAS No. 158 - Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans In September 2006, the FASB issued SFAS...

  • Page 97
    ...effects of "Interest accretion on landfill liabilities," "Interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets" and "Equity-based compensation expense" within the "Cash flows from operating activities" section of our Consolidated Statements...

  • Page 98
    ... our financial 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...

  • Page 99
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Landfill accounting Cost Basis of Landfill Assets - We capitalize various costs that we incur to make a landfill ready to accept waste. These costs generally include expenditures for land (including the landfill ...

  • Page 100
    ...changes. In managing our landfills, our engineers look for ways to reduce or defer our construction costs, including final capping costs. The benefit recognized in these years was generally the result of (i) concerted efforts to improve the operating efficiencies of our landfills and volume declines...

  • Page 101
    ... within the normal application and processing time periods for approvals in the jurisdiction in which 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...

  • Page 102
    ...using our internal resources or by third-party 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...

  • Page 103
    ...based on the effective interest method, in "Operating" costs and expenses in our Consolidated Statements of Operations. The following table summarizes the impacts of revisions in the risk-free discount rate applied to our environmental remediation liabilities during the reported periods (in millions...

  • Page 104
    ... the development and implementation of a revenue management system, some of which may be affected by the ultimate resolution of the lawsuit. As we continue to assess the alternatives available to us, we may determine that the best course of action will be to abandon the SAP revenue management system...

  • Page 105
    ... or transfer station or continuing to dispose of waste at a divested landfill or transfer station. After completing our analysis at December 31, 2008, we determined that the operations that qualify for discontinued operations accounting are not material to our Consolidated Statements of Operations...

  • Page 106
    ...value of the asset or asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset or asset group; (ii) actual third-party valuations; and/or (iii) information available regarding the current market...

  • Page 107
    ... 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 108
    ..., 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-toenergy facility or independent power production plant. We bill for certain services prior...

  • Page 109
    ... trust funds, of $169 million, $144 million and $157 million, respectively. 4. Landfill and Environmental Remediation Liabilities Liabilities for landfill and environmental remediation costs are presented in the table below (in millions): December 31, 2008 Environmental Landfill Remediation Total...

  • Page 110
    ... Consolidated Balance Sheets. 5. Property and Equipment Property and equipment at December 31 consisted of the following (in millions): 2008 2007 Land ...Landfills ...Vehicles ...Machinery and equipment ...Containers ...Buildings and improvements ...Furniture, fixtures and office equipment ...Less...

  • Page 111
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Depreciation and ...prices and the demand for recyclables, our cost of goods sold and interest rates used for discounting. Refer to Note 20 for a summary of changes in our goodwill during 2008 and 2007 by reportable...

  • Page 112
    ... $105 million letter of credit and term loan agreement that expires in June 2013. These facilities are currently being used to back letters of credit issued to support our bonding and financial assurance needs. Our letters of credit generally have terms providing for automatic renewal after one year...

  • Page 113
    .... In connection with our March 2008 issuance of the senior notes, we executed interest rate swap contracts with a total notional value of $200 million. We designated these fixed-to-floating interest rate swap agreements as fair value hedges, resulting in all fair value adjustments being reflected as...

  • Page 114
    ... generally to finance 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 which time we are reimbursed from the trust funds. During...

  • Page 115
    ... within our Wheelabrator Group. These bonds are secured by the related subsidiaries' assets that have a carrying value of $439 million and the related subsidiaries' future revenue. Debt Covenants Our revolving credit facility and certain other financing agreements contain financial covenants. The...

  • Page 116
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (b) The fair value for these interest rate derivatives is comprised of $3 million of current assets and $89 million of long-term assets. (c) The fair value for these interest rate derivatives is comprised of $5 million ...

  • Page 117
    ... rate ...State and local income taxes, net of federal income tax benefit ...Non-conventional fuel tax credits ...Taxing authority audit settlements and other tax adjustments ...Nondeductible costs relating to acquired intangibles ...Tax rate differential on foreign income ...Cumulative effect...

  • Page 118
    ... our landfill gas-to-energy projects. The fuel generated from the facilities and our landfill gas-to-energy projects qualified for tax credits through 2007 under Section 45K of the Internal Revenue Code. The tax credits were subject to a phase-out if the price of crude oil exceeded an annual average...

  • Page 119
    ... we develop, operate and promote the beneficial use of landfill gas. Our recorded taxes include benefits of $13 million and $24 million for the years ended December 31, 2007 and 2006, respectively, from tax credits generated by our landfill gas-to-energy projects. Effective state tax rate change...

  • Page 120
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Deferred tax assets (liabilities) The components of the net deferred tax assets (liabilities) at December 31 are as follows (in millions): December 31, 2008 2007 Deferred tax assets: Net operating loss, capital loss and...

  • Page 121
    ... 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 122
    ...-employer pension plans. 10. Commitments and Contingencies Financial instruments - We have obtained letters of credit, performance bonds and insurance policies and have established trust funds and issued financial guarantees to support tax-exempt bonds, contracts, performance of landfill closure...

  • Page 123
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) estimated accruals for these liabilities could be affected if future occurrences or loss development significantly differ from the assumptions used. As of December 31, 2008, our general liability insurance program ...

  • Page 124
    .... Our purchase agreements have been established based on the plants' anticipated fuel supply needs to meet the demands of our customers under these long-term electricity sale contracts. Under our fuel supply take-or-pay contracts, we are generally obligated to pay for a minimum amount of waste or...

  • Page 125
    ... affect our business, because such regulations increase the demand for our services, and we have the resources and experience to manage environmental risk. As of December 31, 2008, we had been notified that we are a PRP in connection with 74 locations listed on the EPA's National Priorities List...

  • Page 126
    ... and legal issues and are subject to uncertainties. Actions filed against us include commercial, customer, and employment-related claims, including purported class action lawsuits related to our customer service agreements and purported class actions involving federal and state wage and hour and...

  • Page 127
    ... of contract. The lawsuit relates to our 2005 software license from SAP for a waste and recycling revenue management system and agreement for SAP to implement the software on a fixed-fee basis. We have alleged that SAP contracted to provide software that would not need to be customized or enhanced...

  • Page 128
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) recognized an aggregate charge of $39 million to "Operating" expenses for the withdrawal of certain bargaining units from multi-employer pension plans, including a $35 million charge resulting from our partial withdrawal...

  • Page 129
    ...from divestitures in 2006 were partially offset by the recognition of aggregate impairment charges of $18 million, which were principally recognized by our Eastern Group, for business operations held for sale as required by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets...

  • Page 130
    ...February 2006, we were required to make a settlement payment for the difference between the $275 million paid at the inception of the valuation period and the weighted average daily market price of our common stock during the valuation period times the number of shares we repurchased, or $16 million...

  • 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
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) As a result of both the changes in accounting 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 ...

  • Page 133
    ... equity-based compensation we granted to our employees. On December 16, 2005, the Management Development and Compensation Committee of our Board of Directors approved the acceleration of the vesting of all unvested stock options awarded under our stock incentive plans effective December 28, 2005. 99

  • Page 134
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of our stock options is presented in the table below (shares in thousands): 2008 Weighted Average Exercise Shares Price Years Ended December 31, 2007 2006 Weighted Weighted Average Average Exercise Exercise ...

  • Page 135
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the shares their deferred stock units represented and recognize taxable income on such payment. The payment occurred in December 2008. The 2003 Directors' Plan is still in effect and there currently are approximately 377...

  • Page 136
    ... and available-for-sale securities are reflected at fair value in our Consolidated Financial Statements. The carrying values of trade accounts receivable, trade accounts payable and other receivables are reflected in our Consolidated Financial Statements at historical cost, which is materially...

  • Page 137
    ... fair value of our publicly-traded senior notes; and (ii) a significant increase in current market rates on fixed-rate tax-exempt bonds. 18. Acquisitions and Divestitures Acquisitions We continue to pursue the acquisition of businesses that are accretive to our solid waste operations and enhance and...

  • Page 138
    ... waste management services consisting of collection, disposal (solid waste and hazardous waste 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...

  • Page 139
    ... "Other" net operating revenues and "Other" income from operations include (i) the effects of those elements of our in-plant services, methane gas recovery and third-party sub-contract and administration revenues managed by our Upstream, Renewable Energy and National Accounts organizations that are...

  • Page 140
    ... by our collection, landfill and transfer businesses, although these Groups do provide recycling and other services that can affect these trends. The operating margins provided by our Wheelabrator segment (waste-to-energy facilities and independent power production plants) have historically been...

  • Page 141
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (h) The reconciliation of total assets reported above to "Total assets" in the Consolidated Balance Sheets is as follows (in millions): 2008 December 31, 2007 2006 Total assets, as reported above...Elimination of ...

  • Page 142
    ... lot sweeping services and healthcare solutions services. (c) Intercompany revenues between lines of business are eliminated within the Consolidated Financial Statements included herein. Net operating revenues relating to operations in the United States and Puerto Rico, as well as Canada are as...

  • Page 143
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the unaudited quarterly results of operations for 2008 and 2007 (in millions, except per share amounts): First Quarter Second Quarter Third Quarter Fourth Quarter 2008 Operating revenues ...

  • Page 144
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Wisconsin and the related agreement of the bargaining unit to withdraw from the Central States Pension Fund. These charges negatively affected net income for the period by $16 million, or $0.03 per diluted share. Fourth Quarter 2008 • Income...

  • Page 145
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Third Quarter 2007 • Income from operations was negatively affected by $26 million, principally for increased "Operating" expenses, due to a labor dispute in Oakland, California and, to a much lesser extent, the ...

  • Page 146
    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 all of WM Holdings' senior indebtedness...

  • Page 147
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING BALANCE SHEETS - (Continued) December 31, 2007 WMI WM Holdings Non-Guarantor Subsidiaries Eliminations Consolidated ASSETS Current assets: Cash and cash equivalents ...Other current assets ......

  • Page 148
    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, 2008 Operating revenues ...$ - Costs and expenses ...- Income from operations...

  • Page 149
    ...of businesses (net of cash divested) and other sales of assets ...- - Net receipts from restricted trust and escrow accounts and other, net ...(2) - Net cash used in investing activities ...(2) - Cash flows from financing activities: New borrowings ...944 - Debt repayments...(760) (244) Common stock...

  • Page 150
    WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (Continued) WMI WM Holdings Non-Guarantor Subsidiaries Eliminations Consolidated Effect of exchange rate changes on cash and cash equivalents ...Decrease in cash and ...

  • Page 151
    ... of the statement that relate to business combinations completed before the effective date will not have a material impact on our consolidated financial statements. However, our adoption of SFAS No. 141(R) will significantly impact our accounting and reporting for future acquisitions, principally...

  • Page 152
    ... affect, our internal control over financial reporting. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item is incorporated by reference to the Company's definitive Proxy Statement for its 2009 Annual...

  • Page 153
    ... reference. PART IV Item 15. Exhibits, Financial Statement Schedules (a)(1) Consolidated Financial Statements: Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2008 and 2007 Consolidated Statements of Operations for the years ended December 31...

  • Page 154
    ..., thereunto duly authorized. WASTE MANAGEMENT, INC. By: /s/ DAVID P. STEINER David P. Steiner Chief Executive Officer and Director Date: February 17, 2009 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
    ...PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Waste Management, Inc. We have audited the consolidated financial statements of Waste Management, Inc. as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, and have issued our report...

  • Page 156
    ... to operations held-for-sale, and reclassifications 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...

  • 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
    ... to time party thereto and the Bank of Nova Scotia as Administrative Agent. - Computation of Ratio of Earnings to Fixed Charges. - Subsidiaries of the Registrant. - Consent of Independent Registered Public Accounting Firm. - Certification Pursuant to Rule 15d-14(a) under the Securities Exchange Act...

  • 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
    ... President and Chief Financial Officer JAMES E. TREVATHAN Senior Vice President, Southern Group RICK L WITTENBRAKER Senior Vice President, General Counsel, and Chief Compliance Officer DUANE C. WOODS Senior Vice President, Western Group PATRICK J. DERUEDA President WM Recycle America, L.L.C. MARK...

  • Page 161
    ... this report, Waste Management employed an environmentally sustainable printer that has a 100% recycling policy for all hazardous and non-hazardous production waste by-products, generates all of its own electrical and thermal power, and is the only AQMD-certified "totally enclosed" commercial print...

  • Page 162
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