Waste Management 2006 Annual Report Download - page 50

therefore, our coverages are generally maintained at the minimum statutorily required levels. We face the risk of
incurring liabilities for environmental damage if our insurance coverage is ultimately inadequate to cover those
damages. We also carry a 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. To the extent our insurers were unable to meet their obligations, or our own obligations for claims were more
than we estimated, there could be a material adverse effect to our financial results.
In addition, to fulfill our financial assurance obligations with respect to environmental closure and post-closure
liabilities, we generally obtain letters of credit or surety bonds, rely on insurance, including captive insurance, or
fund trust and escrow accounts. We currently have in place all financial assurance instruments necessary for our
operations. We do not anticipate any unmanageable difficulty in obtaining financial assurance instruments in the
future. However, in the event we are unable to obtain sufficient surety bonding, letters of credit or third-party
insurance coverage at reasonable cost, or one or more states cease to view captive insurance as adequate coverage,
we would need to rely on other forms of financial assurance. These types of financial assurance could be more
expensive to obtain, which could negatively impact our liquidity and capital resources and our ability to meet our
obligations as they become due.
The possibility of development and expansion projects or pending acquisitions not being completed or cer-
tain other events could result in a material charge against our earnings.
In accordance with generally accepted accounting principles, we capitalize certain expenditures and advances
relating to disposal site development, expansion projects, acquisitions, software development costs and other
projects. If a facility or operation is permanently shut down or determined to be impaired, a pending acquisition is
not completed, a development or expansion project is not completed or is determined to be impaired, we will charge
against earnings any unamortized capitalized expenditures and advances relating to such facility, acquisition or
project. We reduce the charge against earnings by any portion of the capitalized costs that we estimate will be
recoverable, through sale or otherwise.
In future periods, we may be required to incur charges against earnings in accordance with this policy, or due to
other events that cause impairments. Any such charges could have a material adverse effect on our results of
operations.
Our revenues will fluctuate based on changes in commodity prices.
Our recycling operations process for sale certain recyclable materials, including fibers, aluminum and glass,
all of which are subject to significant market price fluctuations. The majority of the recyclables that we process for
sale are paper fibers, including old corrugated cardboard (“OCC”), and old newsprint (“ONP”). We enter into
commodity price derivatives in an effort to mitigate some of the variability in cash flows from the sales of recyclable
materials at floating market prices. In the past three years, the year-over-year changes in the quarterly average
market prices for OCC ranged from a decrease of as much as 33% to an increase of as much as 36%. The same
comparisons for ONP have ranged from a decrease of as much as 15% to an increase of as much as 29%. These
fluctuations can affect future operating income and cash flows. Additionally, our recycling operations offer rebates
to suppliers, based on the market prices of commodities we buy to process for resale. Therefore, even if we
experience higher revenues based on increased market prices for commodities, the rebates we pay will also increase.
Additionally, there may be significant price fluctuations in the price of methane gas, electricity and other
energy related products that are marketed and sold by our landfill 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 fluctuations do
not have a significant effect on these operations in the short-term. However, as those agreements expire and are up
for renewal, changes in market prices may affect our revenues. Additionally, revenues from our independent power
production plants can be affected by price fluctuations. In the past two years, the year-over-year changes in the
average quarterly electricity prices have increased as much as 12%.
16