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  • 10-K (Feb 14, 2013)
  • 10-K (Feb 22, 2011)
  • 10-K (Feb 17, 2011)
  • 10-K (Feb 16, 2010)
  • 10-K (Feb 17, 2009)

 
Quarterly Reports

 
8-K

 
Other

Waste Management 10-K 2011
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Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2010
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
    For the transition period from          to          
 
Commission file number 1-12154
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  73-1309529
(I.R.S. Employer
Identification No.)
     
1001 Fannin Street, Suite 4000
Houston, 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   New York Stock Exchange
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2010 was approximately $15.0 billion. The aggregate market value was computed by using the closing price of the common stock as of that date on the New York Stock Exchange (“NYSE”). (For purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates.)
 
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at February 10, 2011 was 475,487,984 (excluding treasury shares of 154,794,477).
 
 
 
 
     
Document   Incorporated as to
 
Proxy Statement for the
2011 Annual Meeting of Stockholders
  Part III
 


 

 
 
                 
        Page
 
PART I
  Item 1.     Business     2  
  Item 1A.     Risk Factors     13  
  Item 1B.     Unresolved Staff Comments     21  
  Item 2.     Properties     21  
  Item 3.     Legal Proceedings     22  
  Item 4.     Reserved     22  
 
PART II
  Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     23  
  Item 6.     Selected Financial Data     25  
  Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     26  
  Item 7A.     Quantitative and Qualitative Disclosures About Market Risk     60  
  Item 8.     Financial Statements and Supplementary Data     63  
  Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     133  
  Item 9A.     Controls and Procedures     133  
  Item 9B.     Other Information     133  
 
PART III
  Item 10.     Directors, Executive Officers and Corporate Governance     133  
  Item 11.     Executive Compensation     133  
  Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     133  
  Item 13.     Certain Relationships and Related Transactions, and Director Independence     133  
  Item 14.     Principal Accounting Fees and Services     134  
 
PART IV
  Item 15.     Exhibits, Financial Statement Schedules     134  
 EX-4.6
 EX-12.1
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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PART I
 
Item 1.   Business.
 
 
The financial statements presented in this report represent the consolidation of Waste Management, Inc., a Delaware corporation; Waste Management’s wholly-owned and majority-owned subsidiaries; and certain variable interest entities for which Waste Management or its subsidiaries are the primary beneficiary as described in Note 20 to the Consolidated Financial Statements. Waste Management is a holding company and all operations are conducted by its subsidiaries. When the terms “the Company,” “we,” “us” or “our” are used in this document, those terms refer to Waste Management, Inc., its consolidated subsidiaries and consolidated variable interest entities. When we use the term “WM,” we are referring only to Waste Management, Inc., the parent holding company.
 
WM was incorporated in Oklahoma in 1987 under the name “USA Waste Services, Inc.” and was reincorporated as a Delaware company in 1995. In a 1998 merger, the Illinois-based waste services company formerly known as Waste Management, Inc. became a wholly-owned subsidiary of WM and changed its name to Waste Management Holdings, Inc. (“WM Holdings”). At the same time, our parent holding company changed its name from USA Waste Services to Waste Management, Inc. Like WM, WM Holdings is a holding company and all operations are conducted by subsidiaries. For detail on the financial position, results of operations and cash flows of WM, WM Holdings and their subsidiaries, see Note 23 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 10-Q and current reports on Form 8-K are all available, free of charge, on our website as soon as practicable after we file the reports with the SEC. Our stock is traded on the New York Stock Exchange under the symbol “WM.”
 
We are the leading provider of comprehensive waste management services in North America. Our subsidiaries provide collection, transfer, recycling, and disposal services. We are also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. Our customers include residential, commercial, industrial and municipal customers throughout North America. During 2010, our largest customer represented approximately 2% of annual revenues. We employed approximately 42,800 people as of December 31, 2010.
 
Through our core waste management services, we own or operate 271 landfill sites, which is the largest network of landfills in our industry. In order to make disposal more practical for larger urban markets, where the distance to landfills or waste-to-energy facilities is typically farther, we manage 294 transfer stations that consolidate, compact and transport waste efficiently and economically. We also use waste to create energy. One method we use involves recovering the naturally occurring gas in landfills for use in the generation of electricity. We also use waste to create energy through a highly efficient combustion process. Our waste-to-energy subsidiary, Wheelabrator Technologies Inc., operates 22 plants that produce clean, renewable energy. We are a leading recycler in North America, handling materials that include paper, cardboard, glass, plastic, metal and electronics. Through our recycling operations, we provide cost-efficient, environmentally sound programs for municipalities, businesses and households across the U.S. and Canada. In addition to traditional waste operations, we are also expanding to increase the service offerings we provide for our customers.
 
Our Company’s goals are targeted at serving our customers, our employees, the environment, the communities in which we work and our stockholders, and achievement of our goals is intended to meet the needs of a changing industry. The waste industry continues to confront significant changes. In recent years landfill volumes have declined, and customers are increasingly using alternatives to traditional disposal, such as recycling and composting, while also working to reduce the waste they generate. Accomplishment of our goals will grow our Company and allow us to meet the needs of our customers and communities as they, too, Think Green®. We believe that helping our customers achieve their environmental goals will enable us to achieve profitable growth.
 
Our strategic focus is centered on three long-term goals: know more about our customers and how to service them than anyone else; use conversion and processing technology to extract more value from the materials we


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manage; and continuously improve our operational efficiency. We intend to pursue achievement of our long-term goals in the short-term through efforts to:
 
  •  Grow our markets by implementing customer-focused growth, through customer segmentation and through strategic acquisitions, while maintaining our pricing discipline and increasing the amount of recyclable materials we handle each year;
 
  •  Grow our customer loyalty, in part through the use of enabling technologies;
 
  •  Grow into new markets by investing in greener technologies; and
 
  •  Pursue initiatives that improve our operations and cost structure.
 
We believe that execution of our strategy, including making the investments required by our strategy, will provide long-term value to our stockholders. In addition, we intend to continue to return value to our stockholders through common stock repurchases and dividend payments. In December 2010, we announced that our Board of Directors expects that quarterly dividend payments will be increased to $0.34 per share in 2011, which is an 8% increase from the quarterly dividend we paid in 2010. This will result in an increase in the amount of free cash flow that we expect to pay out as dividends for the eighth consecutive year and is an indication of our ability to generate strong and consistent cash flows. All quarterly dividends will be declared at the discretion of our Board of Directors.
 
Operations
 
 
We manage and evaluate our principal operations through five Groups. Our four geographic operating Groups, comprised of our Eastern, Midwest, Southern and Western Groups, provide collection, transfer, disposal (in both solid waste and hazardous waste landfills) and recycling services. Our fifth Group is the Wheelabrator Group, which provides waste-to-energy services and manages waste-to-energy facilities and independent power production plants, or IPPs. We also provide additional services that are not managed through our five Groups, as described below. These operations are presented in this report as “Other.”
 
The table below shows the total revenues (in millions) contributed annually by each of our Groups, or reportable segments, in the three-year period ended December 31, 2010. More information about our results of operations by reportable segment is included in Note 21 to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this report.
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Eastern
  $ 2,943     $ 2,960     $ 3,319  
Midwest
    3,048       2,855       3,267  
Southern
    3,461       3,328       3,740  
Western
    3,173       3,125       3,387  
Wheelabrator
    889       841       912  
Other
    963       628       897  
Intercompany
    (1,962 )     (1,946 )     (2,134 )
                         
Total
  $ 12,515     $ 11,791     $ 13,388  
                         


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The services we provide include collection, landfill (solid and hazardous waste landfills), transfer, waste-to-energy facilities and independent power production plants, recycling and other services, as described below. The following table shows revenues (in millions) contributed by these services for each of the three years indicated:
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Collection
  $ 8,247     $ 7,980     $ 8,679  
Landfill
    2,540       2,547       2,955  
Transfer
    1,318       1,383       1,589  
Wheelabrator
    889       841       912  
Recycling
    1,169       741       1,180  
Other
    314       245       207  
Intercompany
    (1,962 )     (1,946 )     (2,134 )
                         
Total
  $ 12,515     $ 11,791     $ 13,388  
                         
 
Collection.  Our commitment to customers begins with a vast waste collection network. Collection involves picking up and transporting waste and recyclable materials from where it was generated to a transfer station, material recovery facility (“MRF”) or disposal site. We generally provide collection services under one of two types of arrangements:
 
  •  For commercial and industrial collection services, typically we have a three-year service agreement. The fees under the agreements are influenced by factors such as collection frequency, type of collection equipment we furnish, type and volume or weight of the waste collected, distance to the disposal facility, labor costs, cost of disposal and general market factors. As part of the service, we provide steel containers to most customers to store their solid waste between pick-up dates. Containers vary in size and type according to the needs of our customers and the restrictions of their communities. Many are designed to be lifted mechanically and either emptied into a truck’s compaction hopper or directly into a disposal site. By using these containers, we can service most of our commercial and industrial customers with trucks operated by only one employee.
 
  •  For most residential collection services, we have a contract with, or a franchise granted by, a municipality, homeowners’ association or some other regional authority that gives us the exclusive right to service all or a portion of the homes in an area. These contracts or franchises are typically for periods of three to five years. We also provide services under individual monthly subscriptions directly to households. The fees for residential collection are either paid by the municipality or authority from their tax revenues or service charges, or are paid directly by the residents receiving the service.
 
Landfill.  Landfills are the main depositories for solid waste in North America. At December 31, 2010, we owned or operated 266 solid waste landfills, which represents the largest network of landfills in North America. Solid waste landfills are constructed and operated on land with engineering safeguards that limit the possibility of water and air pollution, and are operated under procedures prescribed by regulation. A landfill must meet federal, state or provincial, and local regulations during its design, construction, operation and closure. The operation and closure activities of a solid waste landfill include excavation, construction of liners, continuous spreading and compacting of waste, covering of waste with earth or other acceptable material and constructing the cap of the landfill. These operations are carefully planned to maintain environmentally safe conditions and to maximize the use of the airspace.
 
All solid waste management companies must have access to a disposal facility, such as a solid waste landfill. The significant capital requirements of developing and operating a landfill serve as a barrier to landfill ownership and, as a result, third-party haulers often dispose of waste at our landfills. It is usually preferable for our collection operations to use disposal facilities that we own or operate, a practice we refer to as internalization, rather than using third-party disposal facilities. Internalization generally allows us to realize higher consolidated margins and stronger operating cash flows. 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.


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We also operate five secure hazardous waste landfills in the United States. Under environmental laws, the federal government (or states with delegated authority) must issue permits for all hazardous waste landfills. All of our hazardous waste landfills have obtained the required permits, although some can accept only certain types of hazardous waste. These landfills must also comply with specialized operating standards. Only hazardous waste in a stable, solid form, which meets regulatory requirements, can be deposited in our secure disposal cells. In some cases, hazardous waste can be treated before disposal. Generally, these treatments involve the separation or removal 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 long-term containment of waste. We also operate a hazardous waste facility at which we isolate treated hazardous waste in liquid form by injection into deep wells that have been drilled in certain acceptable geologic formations far below the base of fresh water to a point that is safely separated by other substantial geological confining layers.
 
Transfer.  At December 31, 2010, we owned or operated 294 transfer stations in North America. We deposit waste at these stations, as do other waste haulers. The solid waste is then consolidated and compacted to reduce the volume and increase the density of the waste and transported by transfer trucks or by rail to disposal sites.
 
Access to transfer stations is critical to haulers who collect waste in areas not in close proximity to disposal facilities. Fees charged to third parties at transfer stations are usually based on the type and volume or weight of the waste deposited at the transfer station, the distance to the disposal site and general market factors.
 
The utilization of our transfer stations by our own collection operations improves internalization by allowing us to retain fees that we would otherwise pay to third parties for the disposal of the waste we collect. It enables us to manage costs associated with waste disposal because (i) transfer trucks, railcars or rail containers have larger capacities than collection trucks, allowing us to deliver more waste to the disposal facility in each trip; (ii) waste is accumulated and compacted at transfer stations that are strategically located to increase the efficiency of our network of operations; and (iii) we can retain the volume by managing the transfer of the waste to one of our own disposal sites.
 
The transfer stations that we operate but do not own generally are operated through lease agreements under which we lease property from third parties. There are some instances where transfer stations are operated under contract, generally for municipalities. In most cases we own the permits and will be responsible for any regulatory requirements relating to the operation and closure of the transfer station.
 
Wheelabrator.  As of December 31, 2010, we owned or operated 17 waste-to-energy facilities and five independent power production plants which are located in the Northeast, in the Mid-Atlantic, and in Florida, California and Washington.
 
At our waste-to-energy facilities, solid waste is burned at high temperatures in specially designed boilers to produce heat that is converted into high-pressure steam. As of December 31, 2010, our waste-to-energy facilities were capable of processing up to 22,300 tons of solid waste each day. In 2010, our waste-to-energy facilities received and processed 7.5 million tons of solid waste, or approximately 20,700 tons per day.
 
Our IPPs convert various waste and conventional fuels into steam. The plants burn wood waste, anthracite coal waste (culm), tires, landfill gas and natural gas. These facilities are integral to the solid waste industry, disposing of urban wood, waste tires, railroad ties and utility poles. Our anthracite culm facility in Pennsylvania processes the waste materials left over from coal mining operations from over half a century ago. Ash remaining after burning the culm is used to reclaim the land damaged by decades of coal mining.
 
We generate steam at our waste-to-energy and IPP facilities for the production of electricity. We sell the electricity produced at our facilities into wholesale markets, which include investor-owned utilities, power marketers and regional power pools. Some of our facilities also sell steam directly to end users. Fees charged for electricity and steam at our waste-to-energy facilities and IPPs have generally been subject to the terms and conditions of long-term contracts that include interim adjustments to the prices charged for changes in market conditions such as inflation, electricity prices and other general market factors. During 2010 and 2009, several of our long-term energy contracts and short-term pricing arrangements expired, significantly increasing our waste-to-energy revenues’ exposure to volatility attributable to changes in market prices for electricity, which generally correlate with fluctuations in natural gas prices in the markets in which we operate. Our market-price


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volatility will continue to increase as additional long-term contracts expire. We use short-term “receive fixed, pay variable” electricity commodity swaps to mitigate the variability in our revenues and cash flows caused by fluctuations in the market prices for electricity. Refer to the Quantitative and Qualitative Disclosures About Market Risk section of this report for additional information about the Company’s current considerations related to the management of this market exposure.
 
We continue to look at opportunities to expand our waste-to-energy business. In 2010, we made two investments which increased the total assets of our Wheelabrator Group by $318 million for the year ended December 31, 2010. In the first quarter of 2010, we paid $142 million to acquire a 40% equity investment in Shanghai Environment Group (“SEG”), a subsidiary of Shanghai Chengtou Holding Co., Ltd. As a joint venture partner in SEG, we will participate in the operation and management of waste-to-energy and other waste services in the Chinese market. SEG will also focus on building new waste-to-energy facilities in China. As of December 31, 2010, SEG owned and operated two waste-to-energy facilities, five landfills and five transfer stations. An additional five waste-to-energy facilities were under construction. Our share of SEG’s earnings are included in “Equity in net losses in unconsolidated entities” in our Consolidated Statement of Operations. In the second quarter of 2010, we paid $150 million for the acquisition of a waste-to-energy facility in Portsmouth, Virginia. Additionally, Wheelabrator is actively pursuing development projects with industry partners and pursuing other opportunities to provide waste-to-energy services in the United Kingdom.
 
Recycling.  Our recycling operations focus on improving the sustainability and future growth of recycling programs within communities and industries. In 2001, we became the first major solid waste company to focus on residential single-stream recycling, which allows customers to mix recyclable paper, plastic and glass in one bin. Residential single-stream programs have greatly increased the recycling rates. Single-stream recycling is possible through the use of various mechanized screens and optical sorting technologies. We have also been advancing the single-stream recycling programs for commercial applications. Recycling involves the separation of reusable materials from the waste stream for processing and resale or other disposition. Our recycling operations include the following:
 
Materials processing — Through our collection operations, we collect recyclable materials from residential, commercial and industrial customers and direct these materials to one of our MRFs for processing. We operate 98 MRFs where paper, cardboard, metals, plastics, glass, construction and demolition materials and other recyclable commodities are recovered for resale. We also operate nine secondary processing facilities where recyclable materials can be further processed into raw products used in the manufacturing of consumer goods. Materials processing services include data destruction and automated color sorting.
 
Plastics materials recycling — Using state-of-the-art sorting and processing technology, we process, inventory and sell plastic commodities making the recycling of such items more cost effective and convenient.
 
Commodities recycling — We market and resell recyclable commodities to customers world-wide. We manage the marketing of recyclable commodities that are processed in our facilities by maintaining comprehensive service centers that continuously analyze market prices, logistics, market demands and product quality.
 
Fees for recycling services are influenced by the type of recyclable commodities being processed, the volume or weight of the recyclable material, degree of processing required, the market value of the recovered material and other market factors.
 
Some of the recyclable materials processed in our MRFs are purchased from various sources, including third parties and our own operations. The cost per ton of material purchased is based on market prices and the cost to transport the processed goods to our customers to whom we sell such materials. The price we pay for recyclable materials is often referred to as a “rebate.” Rebates generally are based upon the price we receive for sales of processed goods and on market conditions, but in some cases are based on fixed contractual rates or on defined minimum per-ton rates. As a result, changes in commodity prices for recycled fiber can significantly affect our revenues, the rebates we pay to our suppliers and our operating income and margins.


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Other.  Other services not managed within our Groups include the following:
 
We provide recycling brokerage services, which includes managing the marketing of recyclable materials for third parties. The experience of our recycling operations in managing recyclable commodities for our own operations gives us the expertise needed to effectively manage volumes for third parties. Utilizing the resources and knowledge of our recycling operations’ service centers, we can assist customers in marketing and selling their recyclable commodities with little to no capital requirements. We also provide electronics recycling. We recycle discarded computers, communications equipment, and other electronic equipment. Services include the collection, sorting and disassembling of electronics in an effort to reuse or recycle all collected materials. In recent years, we have teamed with major electronics manufacturers to offer comprehensive “take-back” programs of their products to assist the general public in disposing of their old electronics in a convenient and environmentally safe manner.
 
We provide sustainability services to businesses through our Upstream® and Green Squad® organizations. This includes in-plant services, where our employees work full-time inside our customers’ facilities to provide full-service waste management solutions and consulting services. Our vertically integrated waste management operations enable us to provide customers with full management of their waste. The breadth of our service offerings and the familiarity we have with waste management practices gives us the unique ability to assist customers in minimizing waste they generate, identifying recycling opportunities and determining the most efficient means available for waste collection and disposal.
 
We develop, operate and promote projects for the beneficial use of landfill gas through our Waste Management Renewable Energy Program. Landfill gas is produced naturally as waste decomposes in a landfill. The methane component of the landfill gas is a readily available, renewable energy source that can be gathered and used beneficially as an alternative to fossil fuel. The EPA endorses landfill gas as a renewable energy resource, in the same category as wind, solar and geothermal resources. At December 31, 2010, landfill gas beneficial use projects were producing commercial quantities of methane gas at 127 of our solid waste landfills. At 97 of these landfills, the processed gas is delivered to electricity generators. The electricity is then sold to public utilities, municipal utilities or power cooperatives. At 21 landfills, the gas is delivered by pipeline to industrial customers as a direct substitute for fossil fuels in industrial processes. At nine landfills, the landfill gas is processed to pipeline-quality natural gas and then sold to natural gas suppliers.
 
Our WM Healthcare Solutions subsidiary offers integrated medical waste services for healthcare facilities, pharmacies and individuals. We provide full-service solutions to facilities to assist them in best practices, identifying waste streams and proper disposal. Our healthcare services also include a sharps mail return program through which individuals can safely dispose of their used syringes and lancets using our MedWaste Tracker system.
 
Although by their very nature many waste management services such as collection and disposal are local services, our Strategic Accounts program works with customers whose locations span the United States. Our Strategic Accounts program provides centralized customer service, billing and management of accounts to streamline the administration of customers’ multiple and nationwide locations’ waste management needs.
 
We also have begun investing in businesses and technologies that are designed to offer services and solutions ancillary or supplementary to our current operations. These investments include joint ventures, acquisitions and partial ownership interests. The solutions and services include the collection of project waste, including construction debris and household or yard waste, through our Bagster® program; the development, operation and marketing of plasma gasification facilities; operation of a landfill gas-to-liquid natural gas plant; solar powered trash compactors; and organic waste-to-fuel conversion technology. Part of our expansion of services includes offering portable self-storage services; and fluorescent bulb and universal waste mail-back through our LampTracker® program. In addition, at a time when oil prices were low, we decided to pursue investment opportunities that involved acquisition and development of non-working interests in oil and gas producing properties.
 
Finally, we rent portable restroom facilities to municipalities and commercial customers under the name Port-o-Let®, we service such facilities and we provide street and parking lot sweeping services.


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The waste industry is very competitive. In North America, the industry consists primarily of two national waste management companies, regional companies and local companies of varying sizes and financial resources, including smaller companies that specialize in certain discrete areas of waste management. We compete with these companies as well as with counties and municipalities that maintain their own waste collection and disposal operations.
 
Operating costs, disposal costs and collection fees vary widely throughout the geographic areas in which we operate. The prices that we charge are determined locally, and typically vary by volume and weight, type of waste collected, treatment requirements, risk of handling or disposal, frequency of collections, distance to final disposal sites, the availability of airspace within the geographic region, labor costs and amount and type of equipment furnished to the customer. We face intense competition in our core business based on pricing and quality of service. We have also begun competing for business based on service offerings. As companies, individuals and communities begin to look for ways to be more sustainable, we are ensuring our customers know about our comprehensive services that go beyond our core business of collecting and disposing of waste.
 
Seasonal Trends
 
Our operating revenues normally tend to be somewhat higher in the summer months, primarily due to the traditional seasonal increase in the volume of construction and demolition waste. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect these seasonal trends, although we saw a significantly weaker seasonal volume increase during 2009 than we generally experience.
 
Additionally, certain destructive weather conditions that tend to occur during the second half of the year, such as the hurricanes that most often impact our Southern Group, can actually increase our revenues in the areas affected. While weather-related and other “one-time” occurrences can boost revenues through additional work, as a result of significant start-up costs and other factors, such revenue sometimes generates earnings at comparatively lower margins. Certain weather conditions, including severe winter storms, may result in the temporary suspension of our operations, which can significantly affect the operating results of the affected regions. The operating results of our first quarter also often reflect higher repair and maintenance expenses because we rely on the slower winter months, when waste flows are generally lower, to perform scheduled maintenance at our waste-to-energy facilities.
 
 
At December 31, 2010, we had approximately 42,800 full-time employees, of which approximately 7,600 were employed in administrative and sales positions and the balance in operations. Approximately 9,300 of our employees are covered by collective bargaining agreements.
 
Financial Assurance and Insurance Obligations
 
Financial Assurance
 
Municipal and governmental waste service contracts generally require contracting parties to demonstrate financial responsibility for their obligations under the contract. Financial assurance is also a requirement for obtaining or retaining disposal site or transfer station operating permits. Various forms of financial assurance also are required to support variable-rate tax-exempt debt and by regulatory agencies for estimated capping, closure, post-closure and environmental remedial obligations at many of our landfills.
 
We establish financial assurance using surety bonds, letters of credit, insurance policies, trust and escrow agreements and financial guarantees. The type of assurance used is based on several factors, most importantly: the jurisdiction, contractual requirements, market factors and availability of credit capacity. The following table


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summarizes the various forms and dollar amounts (in millions) of financial assurance that we had outstanding as of December 31, 2010:
 
                 
Surety bonds:
               
Issued by consolidated subsidiary(a)
  $ 221          
Issued by affiliated entity(b)
    1,025          
Issued by third-party surety companies
    1,800          
                 
Total surety bonds
          $ 3,046  
Letters of credit:
               
Revolving credit facility(c)
    1,138          
Letter of credit facilities(d)
    505          
Other lines of credit
    237          
                 
Total letters of credit
            1,880  
Insurance policies:
               
Issued by consolidated subsidiary(a)
    1,053          
Issued by affiliated entity(b)
    16          
Issued by third-party insurance companies
    184          
                 
Total insurance policies
            1,253  
Funded trust and escrow accounts(e)
            132  
Financial guarantees(f)
            248  
                 
Total financial assurance
          $ 6,559  
                 
 
 
(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 is to issue financial assurance to WM and its subsidiaries. National Guaranty Insurance Company is authorized to write up to approximately $1.5 billion in surety bonds or insurance policies for our capping, closure and post-closure requirements, waste collection contracts and other business-related obligations.
 
(b) We hold a noncontrolling financial interest in an entity that we use to obtain financial assurance. Our contractual agreement with this entity does not specifically limit the amounts of surety bonds or insurance that we may obtain, making our financial assurance under this agreement limited only by the guidelines and restrictions of surety and insurance regulations.
 
(c) WM has a $2.0 billion revolving credit facility that matures in June 2013. At December 31, 2010, we had no outstanding borrowings and $1,138 million of letters of credit issued and supported by the facility. The unused and available credit capacity of the facility was $862 million as of December 31, 2010.
 
(d) We have an aggregate committed capacity of $505 million under letter of credit facilities with maturities that extend from June 2013 to June 2015. As of December 31, 2010, no borrowings were outstanding under these letter of credit facilities and we had no unused or available credit capacity.
 
(e) Our funded trust and escrow accounts generally have been established to support landfill capping, closure, post-closure and environmental remediation obligations and our performance under various operating contracts. Balances maintained in these trust funds and escrow accounts will fluctuate based on (i) changes in statutory requirements; (ii) future deposits made to comply with contractual arrangements; (iii) the ongoing use of funds for qualifying activities; (iv) acquisitions or divestitures of landfills; and (v) changes in the fair value of the financial instruments held in the trust fund or escrow accounts. The assets held in our funded trust and escrow accounts may be drawn and used to meet the obligations for which the trusts and escrows were established.
 
(f) WM provides financial guarantees on behalf of its subsidiaries to municipalities, customers and regulatory authorities. They are provided primarily to support our performance of landfill capping, closure and post-closure activities.


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(g) The amount of financial assurance required can, and generally will, differ from the obligation determined and recorded under U.S. generally accepted accounting principles.
 
Virtually no claims have been made against our financial assurance instruments in the past, and considering our current financial position, management does not expect there to be claims against these instruments that will have a material adverse effect on our Consolidated Financial Statements. In 2010, we experienced an increase in costs associated with letters of credit as a result of the June 2010 refinancing of our revolving credit facility. We actively monitor our financial assurance needs and optimize the utilization of lower-cost instruments when possible to minimize our costs.
 
 
We carry a broad range of insurance coverages, including general liability, automobile liability, real and personal property, workers’ compensation, directors’ and officers’ liability, pollution legal liability and other coverages we believe are customary to the industry. Our exposure to loss for insurance claims is generally limited to the per incident deductible under the related insurance policy. As of December 31, 2010, our general liability insurance program carried self-insurance exposures of up to $2.5 million per incident and our workers’ compensation insurance program carried self-insurance exposures of up to $5 million per incident. As of December 31, 2010, our auto liability insurance program included a per-incident base deductible of $5 million, subject to additional deductibles of $4.8 million in the $5 million to $10 million layer. We do not expect the impact of any known casualty, property, environmental or other contingency to have a material impact on our financial condition, results of operations or cash flows. Our estimated insurance liabilities as of December 31, 2010 are summarized in Note 11 to the Consolidated Financial Statements.
 
The Directors’ and Officers’ Liability Insurance policy we choose to maintain covers only individual executive liability, often referred to as “Broad Form Side A,” and does not provide corporate reimbursement coverage, often referred to as “Side B.” The Side A policy covers directors and officers directly for loss, including defense costs, when corporate indemnification is unavailable. Side A-only coverage cannot be exhausted by payments to the Company, as the Company is not insured for any money it advances for defense costs or pays as indemnity to the insured directors and officers.
 
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 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 with these laws and regulations and have the power to enforce compliance, obtain injunctions or impose civil or criminal penalties in case of violations.
 
Because the major component of our business is the collection and disposal of solid waste in an environmentally sound manner, a significant amount of our capital expenditures are related, either directly or indirectly, to environmental protection measures, including compliance with federal, state or provincial and local provisions that regulate the placement of materials into the environment. There are costs associated with siting, design, operations, monitoring, site maintenance, corrective actions, financial assurance, and facility closure and post-closure obligations. In connection with our acquisition, development or expansion of a disposal facility or transfer station, we must often spend considerable time, effort and money to obtain or maintain required permits and approvals. There cannot be any assurances that we will be able to obtain or maintain required governmental approvals. Once obtained, operating permits are subject to renewal, modification, suspension or revocation by the issuing agency. Compliance with these and any future regulatory requirements could require us to make significant capital and operating expenditures. However, most of these expenditures are made in the normal course of business and do not place us at any competitive disadvantage.


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The primary United States federal statutes affecting our business are summarized below:
 
  •  The Resource Conservation and Recovery Act of 1976, as amended, regulates handling, transporting and disposing of hazardous and non-hazardous waste and delegates authority to states to develop programs to ensure the safe disposal of solid waste. In 1991, the EPA issued its final regulations under Subtitle D of RCRA, which set forth minimum federal performance and design criteria for solid waste landfills. These regulations are typically implemented by the states, although states can impose requirements that are more stringent than the Subtitle D standards. We incur costs in complying with these standards in the ordinary course of our operations.
 
  •  The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, which is also known as Superfund, provides for federal authority to respond directly to releases or threatened releases of hazardous substances into the environment that have created actual or potential environmental hazards. CERCLA’s primary means for addressing such releases is to impose strict liability for cleanup of disposal sites upon current and former site owners and operators, generators of the hazardous substances at the site and transporters who selected the disposal site and transported substances thereto. Liability under CERCLA is not dependent on the intentional disposal of hazardous substances; it can be based upon the release or threatened release, even as a result of lawful, unintentional and non-negligent action, of hazardous substances as the term is defined by CERCLA and other applicable statutes and regulations. Liability may include contribution for cleanup costs incurred by a defendant in a CERCLA civil action or by an entity that has previously resolved its liability to federal or state regulators in an administrative or judicially-approved settlement. Liability under CERCLA could also include obligations to a PRP that voluntarily expends site clean-up costs. Further, liability for damage to publicly-owned natural resources may also be imposed. We are subject to potential liability under CERCLA as an owner or operator of facilities at which hazardous substances have been disposed and as a generator or transporter of hazardous substances disposed of at other locations.
 
  •  The Federal Water Pollution Control Act of 1972, known as the Clean Water Act, regulates the discharge of pollutants into streams, rivers, groundwater, or other surface waters from a variety of sources, including solid and hazardous waste disposal sites. If run-off from our operations may be discharged into surface waters, the Clean Water Act requires us to apply for and obtain discharge permits, conduct sampling and monitoring, and, under certain circumstances, reduce the quantity of pollutants in those discharges. In 1990, the EPA issued additional standards for management of storm water runoff that require landfills and other waste-handling facilities to obtain storm water discharge permits. In addition, if a landfill or other facility discharges wastewater through a sewage system to a publicly-owned treatment works, the facility must comply with discharge limits imposed by the treatment works. Also, before the development or expansion of a landfill can alter or affect “wetlands,” a permit may have to be obtained providing for mitigation or replacement wetlands. The Clean Water Act provides for civil, criminal and administrative penalties for violations of its provisions.
 
  •  The Clean Air Act of 1970, as amended, provides for increased federal, state and local regulation of the emission of air pollutants. Certain of our operations are subject to the requirements of the Clean Air Act, including large municipal solid waste landfills and large municipal waste-to-energy facilities. Standards have also been imposed on manufacturers of 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. In January 2003, the EPA issued Maximum Achievable Control Technology standards for municipal solid waste landfills subject to the new source performance standards. These regulations impose limits on air emissions from large municipal solid waste landfills, subject most of our large municipal solid waste landfills to certain operating permitting requirements under Title V of the Clean Air Act and, in many instances, require installation of landfill gas collection and control systems to control emissions or to treat and utilize landfill gas on or off-site. In 2010, the EPA issued the Prevention of Significant Deterioration, or PSD, and Title V Greenhouse Gas, or GHG, Tailoring Rule which expanded the EPA’s federal air permitting authority to include the six GHGs, including methane and carbon dioxide. Air permits for new and modified large municipal solid waste landfills, waste-to-energy facilities and landfill gas-to-energy facilities could be impacted, but the degree of impact is incumbent upon the EPA’s final


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  determination on permitting of biogenic GHG emissions (e.g. carbon dioxide) as well as the EPA’s or implementing states’ determinations on what may constitute “Best Available Control Technology” for new projects exceeding certain thresholds. In addition, recent final and proposed reductions in certain National Ambient Air Quality Standards and related PSD increment/significance thresholds could impact the cost, timeliness and availability of air permits for new and modified large municipal solid waste landfills, waste-to-energy facilities and landfill gas-to-energy facilities. In general, controlling emissions involves drilling collection wells into a landfill and routing the gas to a suitable energy recovery system or combustion device. We are currently capturing and utilizing the renewable energy value of landfill gas at 127 of our solid waste landfills. Efforts to curtail the emission of greenhouse gases and to ameliorate the effect of climate change may require our landfills to deploy more stringent emission controls, with resulting capital or operating costs. See Item 1A. Risk Factors — “The adoption of climate change legislation or regulations restricting emissions of “greenhouse gases” could increase our costs to operate.”
 
The EPA has issued new source performance standards and emission guidelines for large and small municipal waste-to-energy facilities, which include stringent emission limits for various pollutants based on Maximum Achievable Control Technology standards. These sources are also subject to operating permit requirements under Title V of 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, establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety and Health Administration, and various reporting and record keeping obligations as well as disclosure and procedural requirements. Various standards for notices of hazards, safety in excavation and demolition work and the handling of asbestos, may apply to our operations. The Department of Transportation and OSHA, along with other federal agencies, have jurisdiction over certain aspects of hazardous materials and hazardous waste, including safety, movement and disposal. Various state and local agencies with jurisdiction over disposal of hazardous waste may seek to regulate movement of hazardous materials in areas not otherwise preempted by federal law.
 
There are also various state or provincial and local regulations that affect our operations. Sometimes states’ regulations are stricter than federal laws and regulations when not otherwise preempted by federal law. Additionally, our collection and landfill operations could be affected by legislative and regulatory measures requiring or encouraging waste reduction at the source and waste recycling.
 
Various states have enacted, or are considering enacting, laws that restrict the disposal within the state of solid waste generated outside the state. While laws that overtly discriminate against out-of-state waste have been found to be unconstitutional, some laws that are less overtly discriminatory have been upheld in court. Additionally, several state and local governments have enacted “flow control” regulations, which attempt to require that all waste generated within the state or local jurisdiction be deposited at specific sites. In 1994, the United States Supreme Court ruled that a flow control ordinance that gave preference to a local facility that was privately owned was unconstitutional, but in 2007, the Court ruled that an ordinance directing waste to a facility owned by the local government was constitutional. In addition, from time to time, the United States Congress has considered legislation authorizing states to adopt regulations, restrictions, or taxes on the importation of out-of-state or out-of-jurisdiction waste. The United States Congress’ adoption of legislation allowing restrictions on interstate transportation of out-of-state or out-of-jurisdiction waste or certain types of flow control or the 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 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 deny or revoke these contracts or permits based on the applicant’s or permit holder’s compliance history. Some states, provinces and local jurisdictions go further and consider the compliance history of the parent, subsidiaries or affiliated companies, in addition to the applicant or permit holder. These laws authorize the agencies to make determinations of an applicant’s or permit holder’s fitness


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to be awarded a contract to operate, and to deny or revoke a contract or permit because of unfitness, unless there is a showing that the applicant or permit holder has been rehabilitated through the adoption of various operating policies and procedures put in place to assure future compliance with applicable laws and regulations.
 
See Note 11 to the Consolidated Financial Statements for disclosures relating to our current assessments of the impact of regulations on our current and future operations.
 
Item 1A.   Risk Factors.
 
In an effort to keep our stockholders and the public informed about our business, we may make “forward-looking statements.” Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend” and words of similar nature and generally include statements containing:
 
  •  projections about accounting and finances;
 
  •  plans and objectives for the future;
 
  •  projections or estimates about assumptions relating to our performance; or
 
  •  our opinions, views or beliefs about the effects of current or future events, circumstances or performance.
 
You should view these statements with caution. These statements are not guarantees of future performance, circumstances or events. They are based on facts and circumstances known to us as of the date the statements are made. All phases of our business are subject to uncertainties, risks and other influences, many of which we do not control. Any of these factors, either alone or taken together, could have a material adverse effect on us and could change whether any forward-looking statement ultimately turns out to be true. Additionally, we assume no obligation to update any forward-looking statement as a result of future events, circumstances or developments. The following discussion should be read together with the Consolidated Financial Statements and the notes thereto. Outlined below are some of the risks that we believe could affect our business and financial statements for 2011 and beyond.
 
General economic conditions can directly and adversely affect our revenues and our operating margins.
 
Our business is directly affected by changes in national and general economic factors that are outside of our control, including consumer confidence, interest rates and access to capital markets. A weak economy generally results in decreases in volumes of waste generated, which decreases our revenues. In addition, we have a relatively high fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels. Consumer uncertainty and the loss of consumer confidence may limit the number or amount of services requested by customers and our ability to implement our pricing strategy. In addition to disruption in the credit markets, recent and continuing economic conditions have negatively affected business and consumer spending generally. If our commercial customers do not have access to capital, both our volumes and our ability to increase new business will be negatively impacted.
 
 
We encounter intense competition from governmental, quasi-governmental and private sources in all aspects of our operations. In North America, the industry consists primarily of two national waste management companies, regional companies and local companies of varying sizes and financial resources, including smaller companies that specialize in certain discrete areas of waste management. We compete with these companies as well as with counties and municipalities that maintain their own waste collection and disposal operations. These counties and municipalities may have financial competitive advantages because tax revenues are available to them and tax-exempt financing is more readily available to them. Also, such governmental units may attempt to impose flow control or other restrictions that would give them a competitive advantage. In addition, competitors may reduce


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their prices to expand sales volume or to win competitively-bid contracts. When this happens, we may be unable to execute our pricing strategy, resulting in a negative impact to our revenue growth from yield on base business.
 
If we fail to implement our business strategy, our financial performance and our growth could be materially and adversely affected.
 
Our future financial performance and success are dependent in large part upon our ability to implement our business strategy successfully. We have adopted a business strategy built on three key initiatives: know more about our customers and how to service them than anyone else; use conversion and processing technology to extract more value from the materials we manage; and continuously improve our operational efficiency. In the short-term, we intend to pursue these initiatives through efforts to:
 
  •  Grow our markets by implementing customer-focused growth, through customer segmentation and through strategic acquisitions, while maintaining our pricing discipline and increasing the amount of recyclable materials we handle each year;
 
  •  Grow our customer loyalty, in part through the use of enabling technologies;
 
  •  Grow into new markets by investing in greener technologies; and
 
  •  Pursue initiatives that improve our operations and cost structure.
 
There are risks involved in pursuing our strategy, including the following:
 
  •  Our strategy may result in a significant change to our business, and our employees, customers or investors may not embrace and support our strategy.
 
  •  Customer segmentation is new to our business, and it could result in fragmentation of our efforts, rather than improved customer relationships.
 
  •  In efforts to enhance our revenues, we have implemented price increases and environmental fees, and we have continued our fuel surcharge program to offset fuel costs. The loss of volumes as a result of price increases may negatively affect our cash flows or results of operations.
 
  •  Our ability to make strategic acquisitions and invest in greener technologies depends on our ability to identify desirable acquisition or investment targets, negotiate advantageous transactions despite competition for such opportunities, and realize the benefits we expect from those transactions.
 
  •  Acquisitions and/or investments may not increase our earnings in the timeframe anticipated, or at all, due to difficulties operating in new markets or providing new service offerings, failure to operate within budget, integration issues, or regulatory issues, among others.
 
  •  We continue to seek to divest underperforming and non-strategic assets if we cannot improve their profitability. We may not be able to successfully negotiate the divestiture of underperforming and non-strategic operations, which could result in asset impairments or the continued operation of low-margin businesses.
 
In addition to the risks set forth above, implementation of our business strategy could also be affected by a number of factors beyond our control, such as increased competition, legal developments, government regulation, general economic conditions, increased operating costs or expenses and changes in industry trends. Further, we may decide to alter or discontinue certain aspects of our business strategy at any time. If we are not able to implement our business strategy successfully, our long-term growth and profitability may be adversely affected. Even if we are able to implement some or all of the initiatives of our business plan successfully, our operating results may not improve to the extent we anticipate, or at all.
 
The seasonal nature of our business and “one-time” special projects cause our results to fluctuate, and prior performance is not necessarily indicative of our future results.
 
Our operating revenues tend to be somewhat higher in summer months, primarily due to the higher volume of construction and demolition waste. The volumes of industrial and residential waste in certain regions where we


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operate also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect these seasonal trends. Additionally, certain destructive weather conditions that tend to occur during the second half of the year, such as the hurricanes that most often impact our Southern Group, can actually increase our revenues in the areas affected. While weather-related and other “one-time” occurrences can boost revenues through additional work, as a result of significant start-up costs and other factors, such revenue sometimes generates earnings at comparatively lower margins. During 2010, our financial results included revenue generated as a result of clean-up efforts in connection with the oil spill along the Gulf Coast and the substantial flooding in Tennessee; however, these special projects have a limited time span.
 
Certain weather conditions, including severe weather storms, may result in the temporary suspension of our operations, which can significantly affect the operating results of the affected regions. The operating results of our first quarter also often reflect higher repair and maintenance expenses because we rely on the slower winter months, when waste flows are generally lower, to perform scheduled maintenance at our waste-to-energy facilities.
 
For these and other reasons, operating results in any interim period are not necessarily indicative of operating results for an entire year, and operating results for any historical period are not necessarily indicative of operating results for a future period.
 
Our operations are subject to environmental, health and safety laws and regulations, as well as contractual obligations, that may result in significant liabilities.
 
There is risk of incurring significant environmental liabilities in the use, treatment, storage, transfer and disposal of waste materials. Under applicable environmental laws and regulations, we could be liable if our operations cause environmental damage to our properties or to the property of other landowners, particularly as a result of the contamination of air, drinking water or soil. Under current law, we could also be held liable for damage caused by conditions that existed before we acquired the assets or operations involved. This risk is of particular concern as we execute our growth strategy, partially though acquisitions, because we may be unsuccessful in identifying and assessing potential liabilities during our due diligence investigations. Further, the counterparties in such transactions may be unable to perform their indemnification obligations owed to us. Additionally, we could be liable if we arrange for the transportation, disposal or treatment of hazardous substances that cause environmental contamination, or if a predecessor owner made such arrangements and, under applicable law, we are treated as a successor to the prior owner. Any substantial liability for environmental damage could have a material adverse effect on our financial condition, results of operations and cash flows.
 
In the ordinary course of our business, we have in the past, we are currently, and we may in the future, become involved in legal and administrative proceedings relating to land use and environmental laws and regulations. These include proceedings in which:
 
  •  agencies of federal, state, local or foreign governments seek to impose liability on us under applicable statutes, sometimes involving civil or criminal penalties for violations, or to revoke or deny renewal of a permit we need; and
 
  •  local communities, citizen groups, landowners or governmental agencies oppose the issuance of a permit or approval we need, allege violations of the permits under which we operate or laws or regulations to which we are subject, or seek to impose liability on us for environmental damage.
 
We generally seek to work with the authorities or other persons involved in these proceedings to resolve any issues raised. If we are not successful, the adverse outcome of one or more of these proceedings could result in, among other things, material increases in our costs or liabilities as well as material charges for asset impairments.
 
Further, we often enter into contractual arrangements with landowners imposing obligations on us to meet certain regulatory or contractual conditions upon site closure or upon termination of the agreements. Compliance with these arrangements is inherently subject to subjective determinations and may result in disputes, including litigation. Costs to remediate or restore the condition of closed sites may be significant.


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Stringent government regulations at the federal, state, provincial, and local level in the United States and Canada have a substantial impact on our business, and compliance with such regulations is costly. A large number of complex laws, rules, orders and interpretations govern environmental protection, 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, transfer or processing facilities or on expanding existing facilities;
 
  •  limitations, regulations or levies on collection and disposal prices, 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 and closure of landfills could require us to undertake investigatory or remedial activities, curtail operations or close landfills temporarily or permanently. Future changes in these regulations may require us to modify, supplement or replace equipment or facilities. The costs of complying with these regulations could be substantial.
 
In order to develop, expand or operate a landfill or other waste management facility, we must have various facility permits and other governmental approvals, including those relating to zoning, environmental protection and land use. The permits and approvals are often difficult, time consuming and costly to obtain and could contain conditions that limit our operations.
 
We also have significant financial obligations relating to capping, closure, post-closure and environmental remediation at our existing landfills. We establish accruals for these estimated costs, but we could underestimate such accruals. Environmental regulatory changes could accelerate or increase capping, closure, post-closure and remediation costs, requiring our expenditures to materially exceed our current accruals.
 
Various states have enacted, or are considering enacting, laws that restrict the disposal within the state of solid waste generated outside the state. Additionally, several state and local governments have enacted “flow control” regulations, which attempt to require that all waste generated within the state or local jurisdiction be deposited at specific sites. The United States Congress’ adoption of legislation allowing restrictions on interstate transportation of out-of-state or out-of-jurisdiction waste or certain types of flow control or the 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 and hazardous waste management services.
 
 
Efforts to curtail the emission of GHGs, to ameliorate the effect of climate change, continue to advance on the federal, regional, and state level. Our landfill operations emit methane, identified as a GHG. In the 111th Congress, the U.S. House of Representatives passed a bill that would regulate GHGs comprehensively. While the centerpiece of that bill would be a GHG emission allowance cap-and-trade system, neither landfills nor qualifying waste-to-energy plants would be compelled to hold allowances for their GHG emissions. Rather, they would be subject to certain further emission controls to be determined through administrative rule-making. Should comprehensive federal climate change legislation be enacted, we expect it to impose costs on our operations, the materiality of which we cannot predict.
 
Absent comprehensive federal legislation to control GHG emissions, the EPA is moving ahead administratively under its existing Clean Air Act authority. In 2010, the EPA published a Prevention of Significant Deterioration (“PSD”) and Title V Greenhouse Gas Tailoring Rule (“PSD tailoring rule”). The rule sets new


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thresholds for GHG emissions that define when Clean Air Act permits are required under the PSD and Title V programs. The EPA’s legal authority to “tailor” statutory thresholds in this rule has been challenged, and the EPA intends to delay regulation of certain emissions pending further regulatory analysis. We cannot predict the final requirements of stationary source rules that might apply to landfills and waste-to-energy facilities as a result of this rulemaking and, accordingly, further developments in this area could have a material effect on our results of operations or cash flows.
 
Our business depends on our reputation and the value of our brand.
 
We believe we have developed a reputation for high-quality service, reliability and social and environmental responsibility, and we believe our brand symbolizes these attributes. The Waste Management brand name, trademarks and logos and our reputation are powerful sales and marketing tools, and we devote significant resources to promoting and protecting them. Adverse publicity, whether or not justified, relating to activities by our operations, employees or agents could tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of brand equity could reduce demand for our services and thus have an adverse effect on our financial condition, liquidity and results of operations, as well as require additional resources to rebuild our reputation and restore the value of our brand.
 
 
The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances, as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, regional production patterns, weather conditions and environmental concerns. We have seen average quarterly fuel prices increase by as much as 30% on a year-over-year basis and decrease by as much as 47% on a year-over-year basis within the last two years. We need fuel to run our collection and transfer trucks and our equipment used in our landfill operations. Supply shortages could substantially increase our operating expenses. Additionally, as fuel prices increase, our direct operating expenses increase and many of our vendors raise their prices as a means to offset their own rising costs. We have in place a fuel surcharge program, designed to offset increased fuel expenses; however, we may not be able to pass through all of our increased costs and some customers’ contracts prohibit any pass-through of the increased costs. Additionally, we are currently party to a pending suit that pertains to our fuel and environmental charge and generally alleges that such charges were not properly disclosed, were unfair, and were contrary to contract. See Note 11 of the Consolidated Financial Statements for more information. Regardless of any offsetting surcharge programs, the increased operating costs will decrease our operating margins.
 
Some of our customers, including governmental entities, have suffered financial difficulties affecting their credit risk, which could negatively impact our operating results.
 
We provide service to a number of governmental entities and municipalities, some of which have suffered significant financial difficulties due to the downturn in the U.S. economy and reduced tax revenue. Some of these entities could be unable to pay amounts owed to us or renew contracts with us at previous or increased rates. Many non-governmental customers have also suffered serious financial difficulties, and the inability of our customers to pay us in a timely manner or to pay increased rates could negatively affect our operating results.
 
In addition, the financial difficulties of municipalities could result in a decline in investors’ demand for municipal bonds and a correlating increase in interest rates. As of December 31, 2010, we had $611 million of tax-exempt bonds that are subject to re-pricing on either a daily or a weekly basis through a remarketing process and $405 million of tax-exempt bonds with term interest rate periods that are subject to re-pricing within the next twelve months. If the weakness in the municipal debt market results in re-pricing of our tax-exempt bonds at significantly higher interest rates, we will incur increased interest expenses that may negatively affect our operating results and cash flows.


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The amount of insurance we are required to maintain for environmental liability is governed by statutory requirements. We believe that the cost for such insurance is high relative to the coverage it would provide and, therefore, our coverages are generally maintained at the minimum statutorily-required levels. We face the risk of incurring additional costs for environmental damage if our insurance coverage is ultimately inadequate to cover those damages. We also carry a broad range of other insurance coverages that are customary for a company our size. We use these programs to mitigate risk of loss, thereby enabling 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 significant claims or litigation against insurance companies may subject us to additional risks. 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 variable-rate tax-exempt debt, capping, closure, post-closure and environmental remediation obligations, we generally obtain letters of credit or surety bonds, rely on insurance, including captive insurance, fund trust and escrow accounts or rely upon WM financial guarantees. We currently have in place all financial assurance instruments necessary for our operations. General economic factors may adversely affect the cost of our current financial assurance instruments and changes in regulations may impose stricter requirements on the types of financial assurance that will be accepted. Additionally, 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. It is possible that we could be forced to deposit cash to collateralize our obligations. Other forms of financial assurance could be more expensive to obtain, and any requirements to use cash to support our obligations would negatively impact our liquidity and capital resources and could affect our ability to meet our obligations as they become due.
 
 
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. Events that could, in some circumstances, lead to an impairment include, but are not limited to, shutting down a facility or operation or abandoning a development project or the denial of an expansion permit. If we determine a development or expansion project is impaired, we will charge against earnings any unamortized capitalized expenditures and advances relating to such facility or project reduced by any portion of the capitalized costs that we estimate will be recoverable, through sale or otherwise. We also carry a significant amount of goodwill on our Consolidated Balance Sheet, which is required to be assessed for impairment annually, and more frequently in the case of certain triggering events. We may be required to incur charges against earnings if we determine that events such as those described cause impairments. Any such charges could have a material adverse effect on our results of operations.
 
 
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, known as OCC, and old newsprint, or ONP. The fluctuations in the market prices or demand for these commodities can affect our operating income and cash flows negatively, as we experienced in 2008, or positively, as we experienced in 2010. In the fourth quarter of 2008, the monthly market prices for OCC and ONP fell by 79% and 72%, respectively, from their high points within the year. Additionally, the decline in market prices for commodities resulted in a year-over-year decrease in revenue of $447 million in 2009. Increases in the prices of recycling commodities in 2010 resulted in an increase in revenues of $423 million as compared with 2009. Market prices for recyclable commodities have increased significantly from the near-historic lows experienced in late 2008 and early 2009. For the twelve months of 2010, overall commodity


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prices have increased approximately 57% as compared with 2009. Despite the recent positive trend in commodity prices, these prices may fluctuate substantially and without notice in the future. Additionally, our recycling operations offer rebates to suppliers. Therefore, even if we experience higher revenues based on increased market prices for commodities, the rebates we pay will also increase. In other circumstances, the rebates may be subject to a floor, such that as market prices decrease, any expected profit margins on materials subject to the rebate floor are eliminated.
 
There are also 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 that can significantly impact our revenue from yield provided by such businesses. In most of the markets in which we operate, electricity prices correlate with natural gas prices. For the year ended December 31, 2009, we experienced declines in revenue from yield at our waste-to-energy facilities of $76 million, due to the expiration of certain above-market contracts, resulting in greater exposure to market pricing. During the years ended December 31, 2010, 2009 and 2008, approximately 47%, 46% and 24%, respectively, of the electricity revenue at our waste-to-energy facilities was subject to current market rates. Our waste-to-energy facilities’ exposure to market price volatility will continue to increase as additional long-term contracts expire. We enter into “receive fixed, pay variable” electricity swaps to mitigate the variability in our revenues and cash flows caused by fluctuations in the market prices for electricity. These swaps are generally short-term in nature. Additionally, revenues from our independent power production plants can be affected by price fluctuations. If we are unable to successfully negotiate long-term contracts, or if market prices are at lower levels for sustained periods, our revenues could be adversely affected.
 
 
Our customers are increasingly diverting waste to alternatives to landfill and waste-to-energy disposal, such as recycling and composting, while also working to reduce the amount of waste they generate. In addition, several state and local governments mandate recycling and waste reduction at the source and prohibit the disposal of certain types of waste, such as yard and food waste, at landfills or waste-to-energy facilities. Where such organic waste is not banned from the landfill or waste-to-energy facility, large customers such as grocery stores and restaurants are choosing to divert their organic waste from landfills. Zero-waste goals (sending no waste to the landfill) have been set by many of North America’s largest companies. Although such mandates and initiatives help to protect our environment, these developments reduce the volume of waste going to landfills and waste-to-energy facilities in certain areas, which may affect our ability to operate our landfills and waste-to-energy facilities at full capacity, as well as affecting the prices that we can charge for landfill disposal and waste-to-energy services. Our landfills and our waste-to-energy facilities currently provide and have historically provided our highest operating margins. If we are not successful in expanding our service offerings and growing lines of businesses to service waste streams that do not go to landfills or waste-to-energy facilities and to provide services for customers that wish to reduce waste entirely, then our revenues and operating results will decline. Additionally, despite the development of new service offerings and lines of business, it is reasonably possible that our revenues and our operating margins could be negatively affected due to disposal alternatives.
 
 
Labor unions continually attempt to organize our employees, and these efforts will likely continue in the future. Certain groups of our employees are currently represented by unions, and we have negotiated collective bargaining agreements with these unions. Additional groups of employees may seek union representation in the future, and, if successful, the negotiation of collective bargaining agreements could divert management attention and result in increased operating expenses and lower net income. If we are unable to negotiate acceptable collective bargaining agreements, our operating expenses could increase significantly as a result of work stoppages, including strikes. Any of these matters could adversely affect our financial condition, results of operations and cash flows.


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We could face significant liabilities for withdrawal from multiemployer pension plans.
 
We have participated in and contributed to various “multiemployer” pension plans administered by employer and union trustees. In renegotiation of collective bargaining agreements with labor unions that participate in these plans, we may decide to discontinue participation in various plans. When we withdraw from plans, we can incur withdrawal liabilities for those plans that have underfunded pension liabilities. Various factors affect our liabilities for a plan’s underfunded status, including the numbers of retirees and active workers in the plan, the ongoing solvency of participating employers, the investment returns obtained on plan assets, and the ratio of our historical participation in such plan to all employers’ historical participation. We reflect any withdrawal liability as an operating expense in our statement of operations and as a liability on our balance sheet.
 
We have previously withdrawn several employee bargaining units from underfunded multiemployer pension plans, and we recognized related expenses of $26 million in 2010, $9 million in 2009 and $39 million in 2008. We are still negotiating and litigating final resolutions of our withdrawal liability for these previous withdrawals, which could be materially higher than the charges we have recognized.
 
 
We are involved in civil litigation in the ordinary course of our business and from time-to-time are involved in governmental proceedings relating to the conduct of our business. The timing of the final resolutions to these types of matters is often uncertain. Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our liquidity.
 
 
We may experience problems with either the operation of our current information technology systems or the development and deployment of new information technology systems that could adversely affect, or even temporarily disrupt, all or a portion of our operations until resolved. Inabilities and delays in implementing new systems can also affect our ability to realize projected or expected cost savings. Additionally, any systems failures could impede our ability to timely collect and report financial results in accordance with applicable laws and regulations.
 
If we are not able to develop and protect intellectual property, or if a competitor develops or obtains exclusive rights to a breakthrough technology, our financial results may suffer.
 
Our existing and proposed service offerings to customers may require that we develop or license, and protect, new technologies. We may experience difficulties or delays in the research, development, production and/or marketing of new products and services which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to bring new products and services to market. Further, protecting our intellectual property rights and combating unlicensed copying and use of intellectual property is difficult, and any inability to obtain or protect new technologies could impact our services to customers and development of new revenue sources. Additionally, a competitor may develop or obtain exclusive rights to a “breakthrough technology” that provides a revolutionary change in traditional waste management. If we have inferior intellectual property to our competitors, our financial results may suffer.
 
 
Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our reported financial position or operating results or cause unanticipated fluctuations in our reported operating results in future periods.


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Our capital requirements could increase our expenses or cause us to change our growth and development plans.
 
Recent economic conditions have reduced our cash flows from operations and could do so in the future. If impacts on our cash flows from operations are significant, we may reduce or suspend capital expenditures, growth activity, dividend declarations or share repurchases. We may choose to incur indebtedness to pay for these activities, and there can be no assurances that we would be able to incur indebtedness on terms we deem acceptable. We also may need to incur indebtedness to refinance scheduled debt maturities, and it is possible that the cost of financing could increase significantly, thereby increasing our expenses and decreasing our net income. Further, our ability to execute our financial strategy and our ability to incur indebtedness depends on our ability to maintain investment grade ratings on our senior debt. The credit rating process is contingent upon a number of factors, many of which are beyond our control. If we were unable to maintain our investment grade credit ratings in the future, our interest expense would increase and our ability to obtain financing on favorable terms could be adversely affected.
 
Additionally, we have $1.8 billion of debt as of December 31, 2010 that is exposed to changes in market interest rates within the next twelve months because of the combined impact of our tax-exempt bonds, our interest rate swap agreements and borrowings outstanding under our Canadian Credit Facility. Therefore, increases in interest rates can increase our interest expenses which also would lower our net income and decrease our cash flow.
 
We may use our three-year, $2.0 billion revolving credit facility to meet our cash needs, to the extent available. As of December 31, 2010, we had $1,138 million of letters of credit issued and supported by the facility, leaving an unused and available credit capacity of $862 million. In the event of a default under our credit facility, we could be required to immediately repay all outstanding borrowings and make cash deposits as collateral for all obligations the facility supports, which we may not be able to do. Additionally, any such default could cause a default under many of our other credit agreements and debt instruments. Without waivers from lenders party to those agreements, any such default would have a material adverse effect on our ability to continue to operate.
 
Item 1B.   Unresolved Staff Comments.
 
None.
 
Item 2.   Properties.
 
Our principal executive offices are in Houston, Texas, where we lease approximately 435,000 square feet under leases expiring at various times through 2020. Our Group offices are in Pennsylvania, Illinois, Georgia, Arizona and New Hampshire. We also have field-based administrative offices in Arizona, Illinois and Texas. We own or lease real property in most locations where we have operations. We have operations in each of the fifty states other than Montana. 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, vehicles and equipment. We believe that our vehicles, equipment, and operating properties are adequately maintained and sufficient for our current operations. However, we expect to continue to make investments in additional equipment and property for expansion, for replacement of assets, and in connection with future acquisitions. For more information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations included within this report.


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The following table summarizes our various operations at December 31 for the periods noted:
 
                 
    2010     2009  
 
Landfills:
               
Owned
    210       211  
Operated through lease agreements
    26       26  
Operated through contractual agreements
    35       36  
                 
      271       273  
Transfer stations
    294       310  
Material recovery facilities
    98       90  
Secondary processing facilities
    9       8  
Waste-to-energy facilities
    17       16  
Independent power production plants
    5       5  
 
The following table provides certain information by Group regarding the 236 landfills owned or operated through lease agreements and a count, by Group, of contracted disposal sites as of December 31, 2010:
 
                                         
                            Contracted
 
          Total
    Permitted
    Expansion
    Disposal
 
    Landfills     Acreage(a)     Acreage(b)     Acreage(c)     Sites  
 
Eastern
    40       30,362       6,663       319       7  
Midwest
    73       32,351       9,397       1,051       9  
Southern
    78       38,705       12,861       211       12  
Western
    41       38,452       8,783       1,041       7  
Wheelabrator
    4       781       340              
                                         
      236       140,651       38,044       2,622       35  
                                         
 
 
(a) “Total acreage” includes permitted acreage, expansion acreage, other acreage available for future disposal that has not been permitted, buffer land and other land owned or leased by our landfill operations.
 
(b) “Permitted acreage” consists of all acreage at the landfill encompassed by an active permit to dispose of waste.
 
(c) “Expansion acreage” consists of unpermitted acreage where the related expansion efforts meet our criteria to be included as expansion airspace. A discussion of the related criteria is included within the Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates and Assumptions section included herein.
 
Item 3.   Legal Proceedings.
 
Information regarding our legal proceedings can be found under the Litigation section of Note 11 in the Consolidated Financial Statements included in this report.
 
Item 4.   Reserved.
 
Former Item 4., Submission of Matters to a Vote of Security Holders, has been removed and reserved in compliance with Form 10-K.


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Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “WM.” 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
 
2009
               
First Quarter
  $ 33.99     $ 22.10  
Second Quarter
    29.00       25.06  
Third Quarter
    30.80       26.31  
Fourth Quarter
    34.18       28.28  
2010
               
First Quarter
  $ 35.00     $ 31.29  
Second Quarter
    35.98       31.18  
Third Quarter
    36.24       31.22  
Fourth Quarter
    37.25       34.09  
2011
               
First Quarter (through February 10, 2011)
  $ 38.58     $ 35.94  
 
On February 10, 2011, the closing sale price as reported on the NYSE was $38.14 per share. The number of holders of record of our common stock at February 10, 2011 was 13,922.
 
The graph below shows the relative investment performance of Waste Management, Inc. common stock, the Dow Jones Waste & Disposal Services Index and the S&P 500 Index for the last five years, assuming reinvestment of dividends 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.
 
 
(PERFORMANCE GRAPH)
 
                                                 
    12/31/05   12/31/06   12/31/07   12/31/08   12/31/09   12/31/10
 
Waste Management, Inc. 
  $ 100     $ 124     $ 113     $ 119     $ 126     $ 143  
S&P 500 Index
  $ 100     $ 116     $ 122     $ 77     $  97     $ 112  
Dow Jones Waste & Disposal Services Index
  $ 100     $ 123     $ 129     $ 121     $ 137     $ 163  


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Under capital allocation programs approved by our Board of Directors, we paid quarterly cash dividends of $0.27 per share for a total of $531 million in 2008; $0.29 per share for a total of $569 million in 2009; and $0.315 per share for a total of $604 million in 2010.
 
The Board of Directors approved a capital allocation program for 2010 that provided for expenditures of up to $1.3 billion, comprised of approximately $615 million in cash dividends and up to $685 million in common stock repurchases. In 2010, we paid $604 million in cash dividends and we repurchased $501 million of our common stock. All of the cash dividends paid and common stock repurchases in 2010 were made pursuant to this capital allocation program.
 
The following table summarizes common stock repurchases made during the fourth quarter of 2010:
 
 
                                 
                Total Number of
       
    Total
          Shares Purchased as
    Approximate Maximum
 
    Number of
    Average
    Part of Publicly
    Dollar Value of Shares that
 
    Shares
    Price Paid
    Announced Plans or
    May Yet be Purchased Under
 
Period   Purchased     per Share(a)     Programs     the Plans or Programs(b)  
 
October 1 — 31
    493,401     $ 36.49       493,401     $ 232 million  
November 1 — 30
    593,360     $ 35.39       593,360     $ 211 million  
December 1 — 31
    453,300     $ 35.25       453,300     $ 195 million  
                                 
Total
    1,540,061     $ 35.70       1,540,061     $ —          
                                 
 
 
(a) This amount represents the weighted average price paid per share and includes a per-share commission paid for all repurchases.
 
(b) For each period presented, the maximum dollar value of shares that may yet be purchased under the program has been provided net of the $604 million of dividends declared and paid in 2010. The total amount available for repurchases under the program is shown as zero because our capital allocation program, by its own terms, provided for up to $1.3 billion in dividends and share repurchases in 2010, with any unused portion of the capital allocated under the program unavailable after the end of 2010.
 
In December 2010, we announced that our Board of Directors expects that future quarterly dividend payments will be increased to $0.34 per share in 2011, which is an 8% increase from the quarterly dividend we paid in 2010. All quarterly dividends will be declared at the discretion of our Board of Directors. Additionally, the Board of Directors approved up to $575 million in share repurchases for 2011.


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Item 6.   Selected Financial Data.
 
The information below was derived from the audited Consolidated 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 and certain reclassifications impact the comparability of the financial information presented below. These historical results are not necessarily indicative of the results to be expected in the future.
 
                                         
    Years Ended December 31,  
    2010(a)     2009(a)     2008(a)     2007     2006  
    (In millions, except per share amounts)  
 
Statement of Operations Data:
                                       
Operating revenues
  $ 12,515     $ 11,791     $ 13,388     $ 13,310     $ 13,363  
                                         
Costs and expenses:
                                       
Operating
    7,824       7,241       8,466       8,402       8,587  
Selling, general and administrative
    1,461       1,364       1,477       1,432       1,388  
Depreciation and amortization
    1,194       1,166       1,238       1,259       1,334  
Restructuring
    (2 )     50       2       10        
(Income) expense from divestitures, asset impairments and unusual items
    (78 )     83       (29 )     (47 )     25  
                                         
      10,399       9,904       11,154       11,056       11,334  
                                         
Income from operations
    2,116       1,887       2,234       2,254       2,029  
Other expense, net
    (485 )     (414 )     (437 )     (505 )     (511 )
                                         
Income before income taxes
    1,631       1,473       1,797       1,749       1,518  
Provision for income taxes
    629       413       669       540       325  
                                         
Consolidated net income
    1,002       1,060       1,128       1,209       1,193  
Less: Net income attributable to noncontrolling interests
    49       66       41       46       44  
                                         
Net income attributable to Waste Management, Inc. 
  $ 953     $ 994     $ 1,087     $ 1,163     $ 1,149  
                                         
Basic earnings per common share
  $ 1.98     $ 2.02     $ 2.21     $ 2.25     $ 2.13  
                                         
Diluted earnings per common share
  $ 1.98     $ 2.01     $ 2.19     $ 2.23     $ 2.10  
                                         
Cash dividends declared per common share
  $ 1.26     $ 1.16     $ 1.08     $ 0.96     $ 0.66  
                                         
Cash dividends paid (includes $0.22 declared in 2005, paid in 2006)
  $ 1.26     $ 1.16     $ 1.08     $ 0.96     $ 0.88  
                                         
Balance Sheet Data (at end of period):
                                       
Working capital (deficit)
  $ (3 )   $ 109     $ (701 )   $ (118 )   $ (86 )
Goodwill and other intangible assets, net
    6,021       5,870       5,620       5,530       5,413  
Total assets
    21,476       21,154       20,227       20,175       20,600  
Debt, including current portion
    8,907       8,873       8,326       8,337       8,317  
Total Waste Management, Inc. stockholders’ equity
    6,260       6,285       5,902       5,792       6,222  
Total equity
    6,591       6,591       6,185       6,102       6,497  
 
 
(a) For more information regarding these financial data, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations section 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.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This section includes a discussion of our results of operations for the three years ended December 31, 2010. This discussion may contain forward-looking statements that anticipate results based on management’s plans that are subject to uncertainty. We discuss in more detail various factors that could cause actual results to differ from expectations in Item 1A, Risk Factors. The following discussion should be read in light of that disclosure and together with the Consolidated Financial Statements and the notes to the Consolidated Financial Statements.
 
 
Our 2010 results of operations reflect our discipline in pricing, our ability to control costs in our collection and disposal operations and our continued investment in our strategic initiatives, which will enable us to grow into new markets, provide expanded service offerings and improve our information technology systems. Our results also reflect an improvement in the general economic environment. Highlights of our financial results for 2010 include:
 
  •  Revenues of $12.5 billion compared with $11.8 billion in 2009, an increase of $724 million, or 6.1%. This increase in revenues is primarily attributable to:
 
  •  Increases from recyclable commodity prices of $423 million; increases from our fuel surcharge program of $69 million; and increases from foreign currency translation of $66 million;
 
  •  Increases associated with acquired businesses of $240 million; and
 
  •  Internal revenue growth from yield on our collection and disposal business of 2.3% in the current period, which increased revenue by $239 million;
 
  •  Internal revenue growth from volume was negative 2.6% in 2010, compared with negative 8.1% in 2009. In addition to the lower rate of decline driven by changes in the economy, our volume was favorably affected by revenues associated with oil spill clean-up activities along the Gulf Coast. The year-over-year decline in internal revenue growth due to volume was $304 million;
 
  •  Operating expenses of $7.8 billion, or 62.5% of revenues, compared with $7.2 billion, or 61.4% of revenues, in 2009. This increase of $583 million, or 8.1%, is due primarily to higher customer rebates because of recyclable commodity prices; higher fuel prices; increases in subcontractor costs associated with our oil spill clean-up services along the Gulf Coast; and increases in our landfill operating costs;
 
  •  Selling, general and administrative expenses increased by $97 million, or 7.1%, from $1.4 billion in 2009 to $1.5 billion in 2010. These cost increases were primarily due to support of our strategic growth plans and initiatives;
 
  •  Income from operations of $2.1 billion, or 16.9% of revenues, in 2010 compared with $1.9 billion, or 16.0% of revenues, in 2009;
 
  •  Interest expense of $473 million compared with $426 million in 2009, an increase of $47 million, or 11.0%. This increase is primarily due to higher average debt balances, including additional borrowings incurred in late 2009 primarily to support our strategic plans, and higher costs related to the execution and maintenance of our revolving credit facility executed in June 2010; and
 
  •  Net income attributable to Waste Management, Inc. of $953 million, or $1.98 per diluted share for 2010, as compared with $994 million, or $2.01 per diluted share in 2009.
 
The comparability of our 2010 results with 2009 has been affected by certain items management believes are not representative or indicative of our performance. Our 2010 results were affected by the following:
 
  •  The recognition of pre-tax charges aggregating $55 million related to remediation and closure costs at five closed sites, which had a negative impact of $0.07 on our diluted earnings per share;
 
  •  The recognition of net tax charges of $32 million due to refinements in estimates of our deferred state income taxes and the finalization of our 2009 tax returns, partially offset by favorable tax audit settlements, all of which, combined, had a negative impact of $0.07 on our diluted earnings per share;


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  •  The recognition of a net favorable pre-tax benefit of $46 million for litigation and associated costs, which had a favorable impact of $0.06 on our diluted earnings per share; and
 
  •  The recognition of net pre-tax charges of $26 million as a result of the withdrawal of certain of our union bargaining units from an underfunded multiemployer pension plan, which had a negative impact of $0.03 on our diluted earnings per share.
 
Our 2009 results were affected by the following:
 
  •  The recognition of a tax benefit of $130 million due principally to favorable adjustments from the carry-back of a capital loss, the recognition of state net operating losses and tax credits, the finalization of our 2008 tax returns, the impact of tax audit settlements and the revaluation of deferred taxes due to Canadian tax rate reductions. These items had a combined favorable impact of $0.26 on our diluted earnings per share;
 
  •  The recognition of impairment charges totaling $83 million due primarily to the abandonment of revenue management software and a change in expectations for the future operations of an inactive landfill in California. These items had a negative impact of $0.10 on our diluted earnings per share; and
 
  •  The recognition of pre-tax charges of $50 million related to our 2009 restructuring, primarily related to severance and benefit costs. These restructuring charges reduced diluted earnings per share for the year by $0.06.
 
We are pleased about the lower rate of decline in internal revenue growth from volumes that we experienced during 2010. On the pricing front, our fourth quarter 2010 results were the strongest of the year. For both the fourth quarter and the full year of 2010, we outpaced our long-term pricing objective of achieving price increases in the range of 50 to 100 basis points above the consumer price index, or CPI. In 2011, we will remain committed to our pricing discipline. Based on an anticipated CPI run-rate of 1.0%, we expect our overall revenue growth from yield to be approximately 2.0%. Additionally, we expect our revenue growth from volumes to be flat to slightly positive. However, we are mindful of trends toward waste reduction at the source, diversion from landfills and customers seeking alternative methods of disposal. We will continue to implement measures that we believe will grow our business, improve our current operations performance and enhance and expand our services.
 
 
As is our practice, we are presenting free cash flow, which is a non-GAAP measure of liquidity, in our disclosures because we use this measure in the evaluation and management of our business. We define free cash flow as net cash provided by operating activities, less capital expenditures, plus proceeds from divestitures of businesses (net of cash divested) and other sales of assets. We believe it is indicative of our ability to pay our quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay our debt obligations. Free cash flow is not intended to replace “Net cash provided by operating activities,” which is the most comparable U.S. GAAP measure. However, we believe free cash flow gives investors useful insight into how we view our liquidity. Nonetheless, the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.
 
Our calculation of free cash flow and reconciliation to “Net cash provided by operating activities” is shown in the table below (in millions), and may not be the same as similarly titled measures presented by other companies:
 
                 
    Years Ended
 
    December 31,  
    2010     2009  
 
Net cash provided by operating activities
  $ 2,275     $ 2,362  
Capital expenditures
    (1,104 )     (1,179 )
Proceeds from divestitures of businesses (net of cash divested) and other sales of assets
    44       28  
                 
Free cash flow
  $ 1,215     $ 1,211  
                 


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Our free cash flow was consistent in both years, however our cash provided by operating activities decreased $87 million and our capital expenditures decreased $75 million. The decrease in cash provided by operating activities was primarily due to net unfavorable changes in working capital, increased interest payments and higher income tax payments. These decreases in operating cash flow were partially offset by a cash benefit of $77 million resulting from a litigation settlement that occurred in April 2010. Payments made in 2009 related to severance and benefits costs associated with our 2009 restructuring also affected the comparability of our operating cash flow for the periods presented.
 
The decrease in capital expenditures in 2010 compared with 2009 can generally be attributed to timing of cash payments for the previous years’ fourth quarter capital expenditures. We generally use a significant portion of our free cash flow on capital expenditures in the fourth quarter of each year. A less significant portion of our fourth quarter 2009 capital expenditures were paid for in cash in 2010, as compared with the portion of our fourth quarter 2008 capital expenditures that were paid for in cash in 2009.
 
Our ability to generate over $1.2 billion in free cash flow in 2010 enabled us to return $1.1 billion in cash to stockholders during the year through the payment of $604 million in dividends and the repurchase of $501 million of our common stock.
 
Basis of Presentation of Consolidated Financial Information
 
Consolidation of Variable Interest Entities — In June 2009, the Financial Accounting Standards Board, or FASB, issued revised authoritative guidance associated with the consolidation of variable interest entities. The new guidance primarily uses a qualitative approach for determining whether an enterprise is the primary beneficiary of a variable interest entity, and is, therefore, required to consolidate the entity. This new guidance generally defines the primary beneficiary as the entity that has (i) the power to direct the activities of the variable interest entity that can most significantly impact the entity’s performance; and (ii) the obligation to absorb losses and the right to receive benefits from the variable interest entity that could be significant from the perspective of the entity. The new guidance also requires that we continually reassess whether we are the primary beneficiary of a variable interest entity rather than conducting a reassessment only upon the occurrence of specific events.
 
As a result of our implementation of this guidance, effective January 1, 2010, we deconsolidated certain capping, closure, post-closure and environmental remediation trusts because we share power over significant activities of these trusts with others. Our financial interests in these entities are discussed in Note 20 of our Consolidated Financial Statements. The deconsolidation of these trusts has not materially affected our financial position, results of operations or cash flows during the periods presented.
 
Business Combinations — In December 2007, the FASB issued revisions to the authoritative guidance associated with business combinations. This guidance clarified and revised the principles for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree. This guidance also addressed the recognition and measurement of goodwill acquired in business combinations and expanded disclosure requirements related to business combinations. Effective January 1, 2009, we adopted the FASB’s revised guidance associated with business combinations. The portions of this guidance that relate to business combinations completed before January 1, 2009 did not have a material impact on our consolidated financial statements. Further, business combinations completed subsequent to January 1, 2009, which are discussed in Note 19 of our Consolidated Financial Statements, have not been material to our financial position, results of operations or cash flows. However, to the extent that future business combinations are material, our adoption of the FASB’s revised authoritative guidance associated with business combinations may significantly impact our accounting and reporting for future acquisitions, principally as a result of (i) expanded requirements to value acquired assets, liabilities and contingencies at their fair values when such amounts can be determined and (ii) the requirement that acquisition-related transaction and restructuring costs be expensed as incurred rather than capitalized as a part of the cost of the acquisition.
 
Noncontrolling Interests in Consolidated Financial Statements — In December 2007, the FASB issued authoritative guidance that established accounting and reporting standards for noncontrolling interests in subsidiaries and for the de-consolidation of a subsidiary. The guidance also established that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated


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financial statements. We adopted this guidance on January 1, 2009. The presentation and disclosure requirements of this guidance, which must be applied retrospectively for all periods presented, resulted in reclassifications to our prior period consolidated financial information and the remeasurement of our 2008 effective tax rate, which is discussed in Note 9 of our Consolidated Financial Statements.
 
Fair Value Measurements — In September 2006, the FASB issued authoritative guidance associated with fair value measurements. This guidance defined fair value, established a framework for measuring fair value, and expanded disclosures about fair value measurements. In February 2008, the FASB delayed the effective date of the guidance for all non-financial assets and non-financial liabilities, except those that are measured at fair value on a recurring basis. Accordingly, we adopted this guidance for assets and liabilities recognized at fair value on a recurring basis effective January 1, 2008 and adopted the guidance for non-financial assets and liabilities measured on a non-recurring basis effective January 1, 2009. The application of the fair value framework did not have a material impact on our consolidated financial position, results of operations or cash flows.
 
Refer to Note 2 of our Consolidated Financial Statements for additional information related to the impact of the implementation of new accounting pronouncements on our results of operations and financial position.
 
 
In preparing our financial statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from data available or simply cannot be readily calculated based on generally accepted methods. In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, asset impairments, deferred income taxes and reserves associated with our insured and self-insured claims. Each of these items is discussed in additional detail below. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
 
 
Accounting for landfills requires that significant estimates and assumptions be made regarding (i) the cost to construct and develop each landfill asset; (ii) the estimated fair value of capping, closure and post-closure asset retirement obligations, which must consider both the expected cost and timing of these activities; (iii) the determination of each landfill’s remaining permitted and expansion airspace; and (iv) the airspace associated with each capping event.
 
Landfill Costs — We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity. This estimate includes such costs as landfill liner material and installation, excavation for airspace, landfill leachate collection systems, 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 footprint and required landfill buffer property. The projection of these landfill costs is dependent, in part, on future events. The remaining amortizable basis of each landfill includes costs to develop a site to its remaining permitted and expansion capacity and includes amounts previously expended and capitalized, net of accumulated airspace amortization, and projections of future purchase and development costs.
 
Capping Costs — We estimate the cost for each capping event based on the area to be finally capped and the capping materials and activities required. The estimates also consider when these costs would actually be paid and factor in inflation and discount rates. Our engineering personnel allocate landfill capping costs to specific capping events. The landfill capacity associated with each capping event is then quantified and the capping costs for each event are amortized over the related capacity associated with the event as waste is disposed of at the landfill. We review these costs annually, or more often if significant facts change. Changes in estimates, such as timing or cost of construction, for capping events immediately impact the required liability and the corresponding asset. When the change in estimate relates to a fully consumed asset, the adjustment to the asset must be amortized immediately


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through expense. When the change in estimate relates to a capping event that has not been fully consumed, the adjustment to the asset is recognized in income prospectively as a component of landfill airspace amortization.
 
Closure and Post-Closure Costs — We base our estimates for closure and post-closure costs on our interpretations of permit and regulatory requirements for closure and post-closure maintenance and monitoring. The estimates for landfill closure and post-closure costs also consider when the costs would actually be paid and factor in inflation and discount rates. The possibility of changing legal and regulatory requirements and the forward-looking nature of these types of costs make any estimation or assumption less certain. Changes in estimates for closure and post-closure events immediately impact the required liability and the corresponding asset. When the change in estimate relates to a fully consumed asset, the adjustment to the asset must be amortized immediately through expense. When the change in estimate relates to a landfill asset that has not been fully consumed, the adjustment to the asset is recognized in income prospectively as a component of landfill airspace amortization.
 
Remaining Permitted Airspace — Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey, which is then used to compare the existing landfill topography to the expected final landfill topography.
 
Expansion Airspace — We include currently unpermitted expansion airspace in our estimate of remaining permitted and expansion airspace in certain circumstances. First, to include airspace associated with an expansion effort, we must generally expect the initial expansion permit application to be submitted within one year, and the final expansion permit to be received within five years. Second, we must believe the success of obtaining the expansion permit is likely, considering the following criteria:
 
  •  Personnel are actively working on the expansion of an existing landfill, including efforts to obtain land use and local, state or provincial approvals;
 
  •  It is likely that the approvals will be received 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 restrictions or similar issues that could impair the success of such expansion;
 
  •  Financial analysis has been completed, and the results demonstrate that the expansion has a positive financial and operational impact; and
 
  •  Airspace and related costs, including additional closure and post-closure costs, have been estimated based on conceptual design.
 
For unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, the expansion effort must meet all of the criteria listed above. These criteria are evaluated by our field-based engineers, accountants, managers and others to identify potential obstacles to obtaining the permits. Once the unpermitted airspace is included, our policy provides that airspace may continue to be included in remaining permitted and expansion airspace even if these criteria are no longer met, based on the facts and circumstances of a specific landfill. In these circumstances, continued inclusion must be approved through a landfill-specific review process that includes approval of our Chief Financial Officer and a review by the Audit Committee of our Board of Directors on a quarterly basis. Of the 33 landfill sites with expansions at December 31, 2010, 14 landfills required the Chief Financial Officer to approve the inclusion of the unpermitted airspace. Eight of these landfills required approval by our Chief Financial Officer because of community or political opposition that could impede the expansion process. The remaining six landfills required approval primarily due to the permit application processes not meeting the one- or five-year requirements.
 
When we include the expansion airspace in our calculations of remaining permitted and expansion airspace, we also include the projected costs for development, as well as the projected asset retirement cost related to capping, and closure and post-closure of the expansion in the amortization basis of the landfill.


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Once the remaining permitted and expansion airspace is determined in cubic yards, an airspace utilization factor, or AUF, is established to calculate the remaining permitted and expansion capacity in tons. The AUF is established using the measured density obtained from previous annual surveys and is then adjusted to account for settlement. The amount of settlement that is forecasted will take into account several site-specific factors including current and projected mix of waste type, initial and projected waste density, estimated number of years of life remaining, depth of underlying waste, anticipated access to moisture through precipitation or recirculation of landfill leachate, and operating practices. In addition, the initial selection of the AUF is subject to a subsequent multi- level review by our engineering group, and the AUF used is reviewed on a periodic basis and revised as necessary. Our historical experience generally indicates that the impact of settlement at a landfill is greater later in the life of the landfill when the waste placed at the landfill approaches its highest point under the permit requirements.
 
After determining the costs and remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates that will be expensed as waste is received and deposited at the landfill by dividing the costs by the corresponding number of tons. We calculate per ton amortization rates for each landfill for assets associated with each capping event, for assets related to closure and post-closure activities and for all other costs capitalized or to be capitalized in the future. These rates per ton are updated annually, or more often, as significant facts change.
 
It is possible that actual results, including the amount of costs incurred, the timing of capping, closure and post-closure activities, our airspace utilization or the success of our expansion efforts, could ultimately turn out to be significantly different from our estimates and assumptions. To the extent that such estimates, or related assumptions, prove to be significantly different than actual results, lower profitability may be experienced due to higher amortization rates, or higher expenses; or higher profitability may result if the opposite occurs. Most significantly, if it is determined that the expansion capacity should no longer be considered in calculating the recoverability of the landfill asset, we may be required to recognize an asset impairment or incur significantly higher amortization expense. If it is determined that the likelihood of receiving an expansion permit has become remote, the capitalized costs related to the expansion effort are expensed immediately.
 
 
We are subject to an array of laws and regulations relating to the protection of the environment. Under current laws and regulations, we may have liabilities for environmental damage caused by our operations, or for damage caused by conditions that existed before we acquired a site. These liabilities include potentially responsible party (“PRP”) investigations, settlements, and certain legal and consultant fees, as well as costs directly associated with site investigation and clean up, such as materials, external contractor costs and incremental internal costs directly related to the remedy. We provide for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. We routinely review and evaluate sites that require remediation and determine our estimated cost for the likely remedy based on a number of estimates and assumptions.
 
Where it is probable that a liability has been incurred, we estimate costs required to remediate sites based on site-specific facts and circumstances. We 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 with respect to other named and unnamed PRPs. Estimates of the cost for the likely remedy are then either developed 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 of remediation;
 
  •  The number, financial resources and relative degree of responsibility of other PRPs who may be liable for remediation of a specific site; and
 
  •  The typical allocation of costs among PRPs unless the actual allocation has been determined.


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Our long-lived assets, including landfills and landfill expansions, are carried on our financial statements based on their cost less accumulated depreciation or amortization. We monitor the carrying value of our long-lived assets for potential impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or changes in circumstances are referred to as impairment indicators. If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair 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 for similar assets. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs and is included in the “(Income) expense from divestitures, asset impairments and unusual items” line item in our Consolidated Statement of Operations. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired.
 
There are other considerations for impairments of landfills and goodwill, as described below.
 
Landfills — Certain impairment indicators require significant judgment and understanding of the waste industry when applied to landfill development or expansion projects. For example, a regulator may initially deny a landfill expansion permit application though the expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators of impairment of our landfill assets due to the unique nature of the waste industry.
 
Goodwill — At least annually, we assess our goodwill for impairment. We assess whether an impairment exists by comparing the fair value of each operating segment to its carrying value, including goodwill. We use a combination of two valuation methods, a market approach and an income approach, to estimate the fair value of our operating segments. Fair value computed by these two methods is arrived at using a number of factors, including projected future operating results, economic projections, anticipated future cash flows, comparable marketplace data and the cost of capital. There are inherent uncertainties related to these factors and to our judgment in applying them to this analysis. However, we believe that these two methods provide a reasonable approach to estimating the fair value of our operating segments.
 
The market approach estimates fair value by measuring the aggregate market value of publicly-traded companies with similar characteristics of our business as a multiple of their reported cash flows. We then apply that multiple to our operating segments’ cash flows to estimate their fair values. We believe that this approach is appropriate because it provides a fair value estimate using valuation inputs from entities with operations and economic characteristics comparable to our operating segments.
 
The income approach is based on the long-term projected future cash flows of our operating segments. We discount the estimated cash flows to present value using a weighted-average cost of capital that considers factors such as the timing of the cash flows and the risks inherent in those cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon our operating segments’ expected long-term performance considering the economic and market conditions that generally affect our business.
 
Additional impairment assessments may be performed on an interim basis if we encounter events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired. See Note 6 to the Consolidated Financial Statements for additional information related to goodwill impairment considerations made during the reported periods.


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Deferred Income Taxes
 
Deferred income taxes are based on the difference between the financial reporting and tax basis of assets and liabilities. The deferred income tax provision represents the change during the reporting period in the deferred tax assets and deferred tax liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets include tax loss and credit carry-forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. We establish reserves for uncertain tax positions when, despite our belief that our tax return positions are fully supportable, we believe that certain positions may be challenged and potentially disallowed. When facts and circumstances change, we adjust these reserves through our provision for income taxes.
 
Insured and Self-Insured Claims
 
We have retained a significant portion of the risks related to our health and welfare, automobile, general liability and workers’ compensation insurance programs. Our liabilities associated with the exposure for unpaid claims and associated expenses, including incurred but not reported losses, are based on an actuarial valuation and internal estimates. The accruals for these liabilities could be revised if future occurrences or loss development significantly differ from our assumptions used. Estimated recoveries associated with our insured claims are recorded as assets when we believe that the receipt of such amounts is probable.
 
Results of Operations
 
Operating Revenues
 
We manage and evaluate our principal operations through five Groups. Our four geographic Groups, comprised of our Eastern, Midwest, Southern and Western Groups, provide collection, transfer, disposal (in both solid waste and hazardous waste landfills) and recycling services. Our fifth Group is the Wheelabrator Group, which provides waste-to-energy services and manages waste-to-energy facilities and independent power production plants. These five Groups are our reportable segments. We also provide additional services that are not managed through our five Groups, including recycling brokerage services, electronic recycling services, in-plant services, landfill gas-to-energy services and the impacts of investments that we are making in expanded service offerings, such as portable self-storage and fluorescent lamp recycling. These operations are presented as “Other” in the table below. Shown below (in millions) is the contribution to revenues during each year provided by our five Groups and our Other waste services:
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Eastern
  $ 2,943     $ 2,960     $ 3,319  
Midwest
    3,048       2,855       3,267  
Southern
    3,461       3,328       3,740  
Western
    3,173       3,125       3,387  
Wheelabrator
    889       841       912  
Other
    963       628       897  
Intercompany
    (1,962 )     (1,946 )     (2,134 )
                         
Total
  $ 12,515     $ 11,791     $ 13,388  
                         
 
Our operating revenues generally come from fees charged for our collection, disposal, transfer, recycling and waste-to-energy services and from sales of commodities by our recycling, waste-to-energy and landfill gas-to-energy operations. Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the MRF or disposal facility and our disposal costs. Revenues from our landfill operations consist of tipping fees, which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Recycling revenue generally consists of tipping fees and the sale of recyclable commodities to third parties. The fees we charge for our collection, disposal, transfer and recycling services


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generally include fuel surcharges, which are indexed to current market costs for fuel. Our waste-to-energy revenues, which are generated by our Wheelabrator Group, are based on the type and weight or volume of waste received at our waste-to-energy facilities and IPPs and amounts charged for the sale of energy and steam. Our “Other” revenues include our landfill gas-to-energy operations, Port-O-Let® services, portable self-storage and fluorescent lamp recycling. Intercompany revenues between our operations have been eliminated in the consolidated financial statements. The mix of operating revenues from our major lines of business is reflected in the table below (in millions):
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Collection
  $ 8,247     $ 7,980     $ 8,679  
Landfill
    2,540       2,547       2,955  
Transfer
    1,318       1,383       1,589  
Wheelabrator
    889       841       912  
Recycling
    1,169       741       1,180  
Other
    314       245       207  
Intercompany
    (1,962 )     (1,946 )     (2,134 )
                         
Total
  $ 12,515     $ 11,791     $ 13,388  
                         
 
The following table provides details associated with the period-to-period change in revenues (dollars in millions) along with an explanation of the significant components of the current period changes:
 
                                 
    Period-to-Period
    Period-to-Period
 
    Change
    Change
 
    2010 vs. 2009     2009 vs. 2008  
          As a % of
          As a % of
 
          Total
          Total
 
    Amount     Company(a)     Amount     Company(a)  
 
Average yield(b)
  $ 724       6.1 %   $ (528 )     (3.9 )%
Volume
    (304 )     (2.6 )     (1,078 )     (8.1 )
                                 
Internal revenue growth
    420       3.5       (1,606 )     (12.0 )
Acquisitions
    240       2.0       97       0.7  
Divestitures
    (2 )           (37 )     (0.2 )
Foreign currency translation
    66       0.6       (51 )     (0.4 )
                                 
    $ 724       6.1 %   $ (1,597 )     (11.9 )%
                                 
 
 
(a) Calculated by dividing the amount of current year increase or decrease by the prior year’s total company revenue ($11,791 million and $13,388 million for 2010 and 2009, respectively) adjusted to exclude the impacts of current year divestitures ($2 million and $37 million for 2010 and 2009, respectively).
 
(b) The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company. We also analyze the changes in average yield in terms of related-business revenues in order to differentiate the changes in yield attributable to our pricing strategies from the changes that are caused by market-driven price changes in commodities. The following table summarizes changes in revenues from average yield on a related-business basis:
 


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    Period-to-Period
    Period-to-Period
 
    Change
    Change
 
    2010 vs. 2009     2009 vs. 2008  
          As a % of
          As a % of
 
          Related
          Related
 
    Amount     Business(i)     Amount     Business(i)  
 
Average yield:
                               
Collection, landfill and transfer
  $ 218       2.2 %   $ 321       3.0 %
Waste-to-energy disposal(ii)
    21       5.1       2       0.5  
                                 
Collection and disposal(ii)
    239       2.3       323       2.9  
Recycling commodities
    423       58.5       (447 )     (36.3 )
Electricity(ii)
    (7 )     (2.5 )     (76 )     (21.3 )
Fuel surcharges and mandated fees
    69       18.4       (328 )     (46.5 )
                                 
Total
  $ 724       6.1     $ (528 )     (3.9 )
                                 
 
 
     
(i) Calculated by dividing the increase or decrease for the current year by the prior-year’s related-business revenue, adjusted to exclude the impacts of divestitures for the current year ($2 million and $37 million for 2010 and 2009, respectively). The table below summarizes the related-business revenues for each year, adjusted to exclude the impacts of divestitures:
 
                 
    Denominator  
    2010     2009  
 
Related-business revenues:
               
Collection, landfill and transfer
  $ 9,999     $ 10,622  
Waste-to-energy disposal
    413       434  
                 
Collection and disposal
    10,412       11,056  
Recycling commodities
    723       1,233  
Electricity
    279       356  
Fuel surcharges and mandated fees
    375       706  
                 
Total Company
  $ 11,789     $ 13,351  
                 
 
 
     
(ii) Average revenue growth for yield for “Collection and disposal” excludes all electricity-related revenues generated by our Wheelabrator Group, which are reported as “Electricity” revenues.
 
Our revenues increased $724 million, or 6.1%, and decreased $1,597 million, or 11.9% for the years ended December 31, 2010 and 2009, respectively. The year-over-year change in revenues for both periods has been driven by (i) market factors, including fluctuations in recyclable commodity prices that favorably impacted revenue growth in 2010 and negatively affected revenue growth in 2009; volatility in diesel prices that affects the revenues provided by our fuel surcharge program, which favorably contributed to our revenues in 2010 and negatively affected our revenues in 2009, and foreign currency translation, which favorably affected revenues from our Canadian operations in 2010 but negatively impacted our revenues in 2009; (ii) revenue growth from average yield on our collection and disposal operations in both periods; and (iii) acquisitions. Further affecting revenue changes were revenue declines due to lower volumes that generally resulted from the continued weakness of the overall economic environment, increased pricing, competition and recent trends of waste reduction and diversion by consumers.
 
The following provides further details associated with our period-to-period change in revenues.
 
 
Collection and disposal average yield — This measure reflects the effect on our revenue from the pricing activities of our collection, transfer, landfill and waste-to-energy disposal operations, exclusive of volume changes.

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Revenue growth from collection and disposal average yield includes not only base rate changes and environmental and service fee increases, but also (i) certain average price changes related to the overall mix of services, which are due to both the types of services provided and the geographic locations where our services are provided; (ii) changes in average price from new and lost business; and (iii) price decreases to retain customers.
 
In both 2010 and 2009, our revenue growth from collection and disposal average yield demonstrates our commitment to our pricing strategies despite the current economic environment. This increase in revenue from yield was primarily driven by our collection operations, which experienced yield growth in all lines of business and in every geographic operating Group. We have found that increasing our yield in today’s market is a challenge given the reduced volume levels resulting from the economic slowdown. However, revenue growth from yield on base business and a focus on controlling variable costs have provided margin improvements in our collection line of business. Additionally, a significant portion of our collection revenues is generated under long-term agreements with municipalities or similar local or regional authorities. These agreements generally tie pricing adjustments to inflation indices, which have been low in 2010 as compared with 2009 and 2008. Despite this headwind, we continue to meet our pricing objective of achieving price increases in the range of 50 to 100 basis points above CPI. We are committed to maintaining pricing discipline in order to improve yield on our base business.
 
Revenues from our environmental fee, which are included in average yield on collection and disposal, increased by $33 million and $37 million for the years ended December 31, 2010 and 2009, respectively. Environmental fee revenues totaled $251 million in 2010 as compared with $218 million in 2009 and $181 million in 2008.
 
Recycling commodities — Increases in the prices of the recycling commodities we process resulted in an increase in revenues of $423 million in 2010 as compared with 2009. Market prices for recyclable commodities have increased significantly from the near-historic lows experienced in late 2008 and early 2009. For the twelve months of 2010, overall commodity prices have increased approximately 57% as compared with 2009.
 
In 2009, lower recycling commodity prices were the principal driver of our revenue decline of $447 million. During the fourth quarter of 2008, we saw a rapid decline in commodity prices from the record-high prices we had been experiencing prior to the decline due to a significant decrease in the demand for commodities both domestically and internationally. Commodity demand and prices in the first nine months of 2009 remained well below the demand and prices in the comparable prior-year period.
 
Electricity — The changes in revenue from yield provided by our waste-to-energy business are largely due to fluctuations in rates we can receive for electricity under our power purchase contracts and in merchant transactions. In most of the markets in which we operate, electricity prices correlate with natural gas prices. We experienced declines in revenue from yield at our waste-to-energy facilities of $7 million and $76 million for the years ended December 31, 2010 and 2009, respectively. These declines are due to the expiration of certain above-market contracts, resulting in greater exposure to market pricing. In 2010, approximately 47% of the waste-to-energy generation portfolio was subject to market price movements, compared with 46% in 2009 and 24% in 2008. Our waste-to-energy facilities’ exposure to market price volatility will continue to increase as additional long-term contracts expire; however, we are beginning to see an improvement in market pricing. In addition, we have increased our hedging activities to better manage this risk.
 
Fuel surcharges and mandated fees — Revenue predominantly generated by our fuel surcharge program increased by $69 million and decreased by $328 million for the years ended December 31, 2010 and 2009, respectively. The fluctuation is directly attributed to the fluctuation in the national average prices of diesel fuel that we use for our fuel surcharge program. The mandated fees included in this line item are primarily related to the pass-through to customers of fees and taxes assessed by various state, county and municipal governmental agencies at our landfills and transfer stations. These mandated fees have not had a significant impact on the comparability of revenues for the periods included in the table above.
 
Volume — Our revenue decline due to volume was $304 million, or 2.6%, for the year ended December 31, 2010. This is a notable improvement in the rate of revenue decline from the prior-year period when revenue decline due to volume was $1,078 million, or 8.1%. Volume declines are generally attributable to economic conditions, increased pricing, competition and recent trends of waste reduction and diversion by consumers.


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In 2010, our collection business accounted for $254 million of the total volume-related revenue decline. We have experienced commercial and residential collection volume declines that we attribute to the overall weakness in the economy, as well as the effects of pricing, competition and diversion of waste by consumers. Our industrial collection operations continued to be affected by the current economic environment due to the construction slowdown across the United States. The overall volume decline in the collection line of business was offset in part by an increase in volumes of $99 million associated with oil spill clean-up activities along the Gulf Coast. Lower third-party volumes in our transfer station operations also caused revenue declines in the current-year period, and can generally be attributed to economic conditions and the effects of pricing and competition. However, in 2010, our landfill revenues increased due to higher third-party volumes. This increase was principally due to higher special waste volumes in our Midwest and Southern geographic Groups, which were driven in part by our continued focus on our customers and better meeting their needs.
 
We are pleased with the lessening rate of revenue decline due to lower volumes. However, (i) the continued weakness of the overall economic environment; (ii) recent trends of waste reduction and diversion by consumers; and (iii) pricing and competition are presenting challenges to maintaining and growing volumes.
 
In 2009, our collection business accounted for $622 million of the total volume decline. Our industrial collection operations experienced the most significant revenue declines due to lower volumes, primarily as a result of the continued slowdown in both residential and commercial construction activities across the United States. We also experienced volume declines in our commercial and residential collection lines of businesses in 2009. We attributed these volume declines to the economy, although at a lesser rate than our industrial line of business since they are somewhat recession resistant, as well as to pricing and competition.
 
In 2009, we also experienced a 16% decline in third-party revenue due to volume at our landfills. This decrease was most significant in our more economically sensitive special waste and construction and demolition waste streams, although municipal solid waste streams at our landfills also decreased. Lower third-party volumes in our transfer station operations also caused revenue declines and can generally be attributed to economic conditions and the effects of pricing and competition. Lower volumes in our recycling operations caused declines in revenues of $74 million in 2009. These decreases were attributable to the drastic decline in the domestic and international demand for recyclables in late 2008.
 
Acquisitions and divestitures — Revenues increased $240 million and $97 million for the years ended December 31, 2010 and 2009, respectively, due to acquisitions, principally in (i) the collection and recycling lines of business in both periods, as well as our waste-to-energy line of business in 2010 and (ii) our “Other” businesses, demonstrating our current focus on identifying strategic growth opportunities in new, complementary lines of business. Divestitures accounted for decreased revenues of $2 million and $37 million for the years ended December 31, 2010 and 2009, respectively.
 
Operating Expenses
 
Our operating expenses include (i) labor and related benefits (excluding labor costs associated with maintenance and repairs discussed below), which include salaries and wages, bonuses, related payroll taxes, insurance and benefits costs and the costs associated with contract labor; (ii) transfer and disposal costs, which include tipping fees paid to third-party disposal facilities and transfer stations; (iii) maintenance and repairs relating to equipment, vehicles and facilities and related labor costs; (iv) subcontractor costs, which include the costs of independent haulers who transport waste collected by us to disposal facilities and are affected by variables such as volumes, distance and fuel prices; (v) costs of goods sold, which are primarily rebates paid to suppliers associated with recycling commodities; (vi) fuel costs, which represent the costs of fuel and oil to operate our truck fleet and landfill operating equipment; (vii) disposal and franchise fees and taxes, which include landfill taxes, municipal franchise fees, host community fees and royalties; (viii) landfill operating costs, which include interest accretion on landfill liabilities, interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets, leachate and methane collection and treatment, landfill remediation costs and other landfill site costs; (ix) risk management costs, which include workers’ compensation and insurance and claim costs; and (x) other operating costs, which include, among other costs, equipment and facility rent and property taxes.


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Our operating expenses increased $583 million, or 8.1%, when comparing 2010 with 2009 and decreased by $1,225 million, or 14.5%, when comparing 2009 with 2008. Operating expenses as a percentage of revenues were 62.5% in 2010, 61.4% in 2009 and 63.2% in 2008. The changes in our operating expenses during the years ended December 31, 2010 and 2009 can largely be attributed to the following:
 
Changes in market prices for recyclable commodities — Overall, market prices for recyclable commodities were approximately 57% higher on average during 2010 than in 2009. The year-over-year increase is the result of the recovery in recyclable commodity prices from the near-historic lows reached in late 2008 and early 2009. This increase in market prices was the driver of the current year increase in cost of goods sold, primarily customer rebates, and has also resulted in increased revenues and earnings this year. When comparing 2009 with 2008, market prices for recyclable commodities had the opposite effect on our results as they declined approximately 39%.
 
Acquisitions and growth initiatives — In both 2010 and 2009, we experienced cost increases attributable to recently acquired businesses and our various growth and business development initiatives. These cost increases have affected each of the operating cost categories identified in the table below.
 
Fuel price changes — Higher market prices for fuel caused increases in both our direct fuel costs and our subcontractor costs for the year ended December 31, 2010, while lower market prices caused decreases in these costs for the year ended December 31, 2009. On average, diesel fuel prices increased 21%, to $2.99 per gallon for 2010 from $2.46 per gallon for 2009; while they decreased in 2009 by 35%, from $3.81 per gallon in 2008.
 
Canadian exchange rates — When comparing the average exchange rate for the years ended December 31, 2010 and 2009, the Canadian exchange rate strengthened by 10%, which increased our expenses in all operating cost categories. The strengthening of the Canadian dollar increased our total operating expenses by $52 million for 2010 as compared with 2009. When comparing 2009 with 2008, the Canadian exchange rate weakened by 7% and decreased our total operating expenses by $40 million.
 
Volume declines and divestitures — Throughout 2010 and 2009, we experienced volume declines as a result of the continued weakness of the overall economic environment, pricing, competition and recent trends of waste reduction and diversion by consumers. Note that the revenue decline due to lower volume moderated in 2010 as compared with the volume decline in 2009, particularly in the second half of the year. During 2009 we also experienced volume declines as a result of 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 categories identified in the table below.
 
The following table summarizes the major components of our operating expenses, including the impact of foreign currency translation, for the years ended December 31 (dollars in millions):
 
                                                         
          Period-to-
          Period-to-
       
    2010     Period Change     2009     Period Change     2008  
 
Labor and related benefits
  $ 2,300     $ 40       1.8 %   $ 2,260     $ (160 )     (6.6 )%   $ 2,420  
Transfer and disposal costs
    943       6       0.6       937       (111 )     (10.6 )     1,048  
Maintenance and repairs
    1,041       8       0.8       1,033       (41 )     (3.8 )     1,074  
Subcontractor costs
    770       70       10.0       700       (201 )     (22.3 )     901  
Cost of goods sold
    776       288       59.0       488       (324 )     (39.9 )     812  
Fuel
    493       79       19.1       414       (301 )     (42.1 )     715  
Disposal and franchise fees and taxes
    589       11       1.9       578       (30 )     (4.9 )     608  
Landfill operating costs
    294       72       32.4       222       (69 )     (23.7 )     291  
Risk management
    202       (9 )     (4.3 )     211       2       1.0       209  
Other
    416       18       4.5       398       10       2.6       388  
                                                         
    $ 7,824     $ 583       8.1 %   $ 7,241     $ (1,225 )     (14.5 )%   $ 8,466  
                                                         


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The period-to-period changes for each category of operating expenses are discussed below.
 
Labor and related benefits — Our 2010 expenses increased as a result of (i) higher salaries and wages due to merit increases that were effective in July 2009 for hourly employees and in April 2010 for both salaried and hourly employees; (ii) additional expenses incurred for acquisitions and growth opportunities; and (iii) the strengthening of the Canadian dollar. These cost increases were offset, in part, by cost savings that have been achieved as volumes declined.
 
When comparing 2009 with 2008, the cost declines were generally a result of (i) headcount and overtime reductions related to volume declines; (ii) effects of foreign currency translation; (iii) a benefit from the restructuring we initiated in January of 2009, although most of these savings were reflected in our selling, general and administrative expenses; and (iv) cost savings provided by our operational improvement initiatives. These cost savings were offset, in part, by higher hourly wages due to merit increases and increased bonus expense as our performance against targets established by our incentive plans was stronger than it had been in 2008.
 
The comparability of our labor and related benefits costs for the periods presented has also been affected by costs incurred primarily associated with the withdrawal of certain bargaining units from underfunded multiemployer pension plans. These costs increased 2010 expense by $26 million, 2009 expense by $9 million and 2008 expense by $42 million.
 
Transfer and disposal costs — During 2009 the cost decreases as compared with 2008 were a result of volume declines and our continued focus on reducing disposal costs associated with our third-party disposal volumes by improving internalization. This decrease was also partially due to foreign currency translation.
 
Maintenance and repairs — Comparing 2009 with 2008, these costs declined as a result of volume declines and various fleet initiatives that favorably affected our maintenance, parts and supplies costs. These decreases were offset partially by cost increases due to differences in the timing and scope of planned maintenance projects at our waste-to-energy and landfill gas-to-energy facilities.
 
Subcontractor costs — The 2010 increase in subcontractor costs is largely the result of oil spill clean-up activities along the Gulf Coast and is also attributable to higher diesel fuel prices. We incurred $54 million in subcontractor costs related to oil spill clean-up activities this year. When comparing 2009 with 2008, the cost decreases are a result of volume declines, a significant decrease in diesel fuel prices and the effects of foreign currency translation.
 
Cost of goods sold — The cost changes during the years presented are principally due to changes in the recycling commodity rebates we pay to our customers as a result of changes in market prices for recyclable commodities.
 
Fuel — The cost changes for 2010 and 2009 are a result of changes in market prices for diesel fuel and volume declines.
 
Disposal and franchise fees and taxes — These cost decreases in 2009 as compared with 2008 are principally a result of volume declines.
 
Landfill operating costs — Increases in these costs in the current year were due, in part, to the recognition of additional estimated expense associated with environmental remediation liabilities of $50 million at four closed sites during 2010.
 
The changes in this category for the years presented were also significantly impacted by the changes in U.S. Treasury rates used to estimate the present value of our environmental remediation obligations and recovery assets. As a result of changes in U.S. Treasury rates, we recognized $2 million of unfavorable adjustments during 2010, compared with $35 million of favorable adjustments during 2009 and $33 million of unfavorable adjustments during 2008. Over the course of 2010, the discount rate we use decreased slightly from 3.75% to 3.50%, although it reached as low as 2.50% in September. During 2009, the rate increased from 2.25% to 3.75% and during 2008, the rate declined from 4.00% to 2.25%.


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Risk management — The slight year-over-year decrease in 2010 and the consistent cost levels in 2009 and 2008 reflect the success we have had over the last several years in managing these costs, which can be credited primarily to our continued focus on safety and reduced accident and injury rates.
 
Other — The comparison of these costs has been significantly affected by the following:
 
  •  In 2010, the increase in costs compared with 2009 was attributable, in part, to (i) our various growth and business development initiatives, (ii) oil spill clean-up activities along the Gulf Coast, and (iii) recently acquired businesses. These cost increases were partially offset by an increase in gains recognized from the sale of surplus real estate assets.
 
  •  In 2009, we had a significant increase in the property taxes assessed for one of our waste-to-energy facilities.
 
Selling, General and Administrative
 
Our selling, general and administrative expenses consist of (i) labor and related benefit costs, which include salaries, bonuses, related insurance and benefits, contract labor, payroll taxes and equity-based compensation; (ii) professional fees, which include fees for consulting, legal, audit and tax services; (iii) provision for bad debts, which includes allowances for uncollectible customer accounts and collection fees; and (iv) other selling, general and administrative expenses, which include, among other costs, facility-related expenses, voice and data telecommunication, advertising, travel and entertainment, rentals, postage and printing. In addition, the financial impacts of litigation settlements generally are included in our “Other” selling, general and administrative expenses.
 
Our selling, general and administrative expenses increased by $97 million, or 7.1%, when comparing 2010 with 2009 and decreased $113 million, or 7.7%, when comparing 2009 with 2008. The current year increase is largely due to (i) increased costs of $52 million during 2010, incurred to support our strategic plan to grow into new markets and provide expanded service offerings and (ii) increased costs of $23 million during 2010, resulting from improvements we are making to our information technology systems. When comparing 2009 with 2008, the decrease was due in part to (i) the realization of benefits associated with our January 2009 restructuring and (ii) increased efforts to reduce controllable spending. Our selling, general and administrative expenses as a percentage of revenues were 11.7% in 2010, 11.6% in 2009 and 11.0% in 2008.
 
The following table summarizes the major components of our selling, general and administrative costs for the years ended December 31 (dollars in millions):
 
                                                         
          Period-to-
          Period-to-
       
    2010     Period Change     2009     Period Change     2008  
 
Labor and related benefits
  $ 845     $ 70       9.0 %   $ 775     $ (78 )     (9.1 )%   $ 853  
Professional fees
    175       8       4.8       167       (1 )     (0.6 )     168  
Provision for bad debts
    45       (9 )     (16.7 )     54       (3 )     (5.3 )     57  
Other
    396       28       7.6       368       (31 )     (7.8 )     399  
                                                         
    $ 1,461     $ 97       7.1 %   $ 1,364     $ (113 )     (7.7 )%   $ 1,477  
                                                         
 
Labor and related benefits — In 2010, our labor and related benefits costs increased due primarily to (i) higher salaries and hourly wages due to merit increases; (ii) higher compensation costs due to an increase in headcount driven by our growth initiatives; (iii) additional bonus expense in 2010 because our performance against targets established by our annual incentive plans was stronger in 2010 compared with 2009; (iv) increased contract labor costs as a result of our current focus on optimizing our information technology systems; (v) increased severance costs; and (vi) higher non-cash compensation costs incurred for equity awards granted under our long-term incentive plans. During the second quarter of 2009, we reversed all compensation costs previously recognized for our 2008 performance share units based on a determination that it was no longer probable that the targets established for that award would be met. Additionally, stock option equity awards granted during the first quarter of 2010 provide for continued vesting for three years following an employee’s retirement, and because retirement-eligible employees are not required to provide any future service to vest in these awards, we recognized all of the compensation expense associated with their awards immediately. We did not incur similar charges in prior years because this retirement provision was not included in any of the equity awards that were granted in 2009 or in 2008.


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In 2009, our labor and related benefits costs decreased from 2008 because we realized benefits associated with our January 2009 restructuring. Our labor and related benefits expenses in 2009 were also affected by a significant decrease in non-cash compensation costs associated with the equity-based compensation provided for by our long-term incentive plans as a result of (i) a decline in the grant-date fair value of our equity awards; (ii) lower performance against established targets for certain awards than in the prior year; and (iii) the reversal of all compensation costs previously recognized for our 2008 performance share units. This decrease in non-cash compensation costs was offset, in part, by higher costs associated with our salary deferral plan, the costs of which are directly affected by equity-market conditions. Additionally, contract labor costs incurred for various Corporate support functions were lower during 2009 than in 2008.
 
Professional fees — In 2010, our professional fees increased due to consulting fees, driven primarily by improvements we are making to our information technology systems and our continued strategic focus to grow into new markets and provide expanded service offerings. This increase was partially offset by a reduction in legal fees in 2010.
 
Provision for bad debts — Our provision for bad debts was higher in 2009 and in 2008 as compared with 2010 as a result of the Company’s assessment of the weak economic environment in those years and the resulting impacts on our collection risk. However, in the latter part of 2009 and during 2010 our collection risk moderated, thus resulting in a lower provision in 2010.
 
Other — During 2010, we experienced increases in our (i) litigation reserves, (ii) marketing and advertising costs, due in part to our strategic plan to grow into new markets and provide expanded service offerings, and (iii) computer costs, due in part to improvements we are making to our information technology systems.
 
In 2009, our focus on reducing controllable spending resulted in decreases in our advertising, meetings, seminars, and travel and entertainment costs. These lower costs were partially due to the January 2009 restructuring. This decline was offset partially by unfavorable litigation settlements in 2009.
 
 
Depreciation and amortization includes (i) depreciation of property and equipment, including assets recorded for capital leases, on a straight-line basis from three to 50 years; (ii) amortization of landfill costs, including those incurred and all estimated future costs for landfill development, construction and asset retirement costs arising from closure and post-closure, on a units-of-consumption method as landfill airspace is consumed over the total estimated remaining capacity of a site, which includes both permitted capacity and expansion capacity that meets our Company-specific criteria for amortization purposes; (iii) amortization of landfill asset retirement costs arising from capping obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each capping event; and (iv) amortization of intangible assets with a definite life, either using a 150% declining balance approach or a straight-line basis over the definitive terms of the related agreements, which are generally from two to ten years depending on the type of asset.
 
The following table summarizes the components of our depreciation and amortization costs for the years ended December 31 (dollars in millions):
 
                                                         
          Period-to-
          Period-to-
       
          Period
          Period
       
    2010     Change     2009     Change     2008  
 
Depreciation of tangible property and equipment
  $ 781     $ 2       0.3 %   $ 779     $ (6 )     (0.8 )%   $ 785  
Amortization of landfill airspace
    372       14       3.9       358       (71 )     (16.6 )     429  
Amortization of intangible assets
    41       12       41.4       29       5       20.8       24  
                                                         
    $ 1,194     $ 28       2.4 %   $ 1,166     $ (72 )     (5.8 )%   $ 1,238  
                                                         
 
The increase in amortization expense of landfill airspace in 2010 is largely due to adjustments to the amortization rates at various landfill sites. These adjustments were principally attributable to increases in cost estimates. The decrease in amortization of landfill airspace expense in 2009 is largely due to volume declines as a


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result of (i) the slowdown in the economy; (ii) our pricing strategy and competition, both of which significantly reduced our collection volumes; and (iii) the re-direction of waste to third-party disposal facilities in certain regions due to either the closure of our own landfills or the current capacity constraints of landfills where we are seeking an expansion permit. The comparability of our amortization of landfill airspace for the years ended December 31, 2010, 2009, and 2008 has also been affected by adjustments recorded in each year for changes in estimates related to our capping, closure and post-closure obligations. During the years ended December 31, 2010, 2009 and 2008, landfill amortization expense was reduced by $13 million, $14 million and $3 million, respectively, for the effects of these changes in estimates. In each year, the majority of the reduced expense resulting from the revised estimates was associated with capping changes that were generally the result of (i) concerted efforts to improve the operating efficiencies of our landfills and volume declines, both of which have allowed us to delay spending for capping activities; (ii) effectively managing the cost of capping material and construction; or (iii) landfill expansions that resulted in reduced or deferred capping costs.
 
The increase in amortization expense of intangible assets in 2010 is due to our focus on the growth and development of our business through acquisitions and other investments. The current year increases are primarily related to the amortization of definite-lived operating permits acquired by our healthcare solutions operations, customer lists acquired by our Southern and Midwest Groups and gas rights acquired by our renewable energy operations.
 
 
In January 2009, we took steps to further streamline our organization by (i) consolidating our Market Areas; (ii) integrating the management of our recycling operations with our other solid waste business; and (iii) realigning our Corporate organization with this new structure in order to provide support functions more efficiently.
 
Our principal operations are managed through our Groups. Each of our four geographic Groups had been further divided into 45 Market Areas. As a result of our restructuring, the Market Areas were consolidated into 25 Areas. We found that our larger Market Areas generally were able to achieve efficiencies through economies of scale that were not present in our smaller Market Areas, and this reorganization has allowed us to lower costs and to continue to standardize processes and improve productivity. In addition, during the first quarter of 2009, responsibility for the oversight of day-to-day recycling operations at our material recovery facilities and secondary processing facilities was transferred from our Waste Management Recycle America, or WMRA, organization to our four geographic Groups. By integrating the management of our recycling facilities’ operations with our other solid waste business, we are able to more efficiently provide comprehensive environmental solutions to our customers. In addition, as a result of this realignment, we have significantly reduced the overhead costs associated with managing this portion of our business and have increased the geographic Groups’ focus on maximizing the profitability and return on invested capital of our business on an integrated basis.
 
This restructuring eliminated over 1,500 employee positions throughout the Company. During 2009, we recognized $50 million of pre-tax charges associated with this restructuring, of which $41 million were related to employee severance and benefit costs. The remaining charges were primarily related to lease obligations for property that will no longer be utilized.
 
In 2010, we recognized $2 million of income related to the reversal of pre-tax restructuring charges.


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The following table summarizes the major components of “(Income) expense from divestitures, asset impairments and unusual items” for the year ended December 31 for the respective periods (in millions):
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Income from divestitures
  $ (1 )   $     $ (33 )
Asset impairments
          83       4  
Other
    (77 )            
                         
    $ (78 )   $ 83     $ (29 )
                         
 
Income from Divestitures — The net gain from divestitures during 2008 was a result of our focus on selling underperforming businesses and primarily related to the divestiture of underperforming collection operations in our Southern Group.
 
Asset Impairments — Through December 31, 2008, we capitalized $70 million of accumulated costs associated with the development of a new waste and recycling revenue management system. A significant portion of these costs was specifically associated with the purchase of a license for waste and recycling revenue management software and the efforts required to develop and configure that software for our use. After a failed pilot implementation of the software in one of our smallest Market Areas, the development efforts associated with the revenue management system were suspended in 2007. During 2009, we determined to enhance and improve our existing revenue management system and not pursue alternatives associated with the development and implementation of the licensed software. Accordingly, in 2009, we recognized a non-cash charge of $51 million, $49 million of which was recognized during the first quarter of 2009 and $2 million of which was recognized during the fourth quarter of 2009, for the abandonment of the licensed software.
 
We recognized an additional $32 million of impairment charges during 2009, $27 million of which was recognized by our Western Group during the fourth quarter of 2009 to fully impair a landfill in California as a result of a change in our expectations for the future operations of the landfill. The remaining impairment charges were primarily attributable to a charge required to write down certain of our investments in portable self-storage operations to their fair value as a result of our acquisition of a controlling financial interest in those operations.
 
During 2008, we recognized a $4 million impairment charge, primarily as a result of a decision to close a landfill in our Southern Group.
 
Other — We filed a lawsuit in March 2008 related to the revenue management software implementation that was suspended in 2007 and abandoned in 2009. In April 2010, we settled the lawsuit and received a one-time cash payment. The settlement resulted in an increase in income from operations for the year ended December 31, 2010 of $77 million.


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Income From Operations by Reportable Segment
 
The following table summarizes income from operations by reportable segment for the years ended December 31 (dollars in millions):
 
                                                         
          Period-to-
          Period-to-
       
          Period
          Period
       
    2010     Change     2009     Change     2008  
 
Reportable segments:
                                                       
Eastern
  $ 516     $ 33       6.8 %   $ 483     $ (40 )     (7.6 )%   $ 523  
Midwest
    533       83       18.4       450       (25 )     (5.3 )     475  
Southern
    844       76       9.9       768       (104 )     (11.9 )     872  
Western
    569       48       9.2       521       (91 )     (14.9 )     612  
Wheelabrator
    214       (21 )     (8.9 )     235       (88 )     (27.2 )     323  
Other
    (135 )     1       (0.7 )     (136 )     (76 )     *       (60 )
Corporate and other
    (425 )     9       (2.1 )     (434 )     77       (15.1 )     (511 )
                                                         
Total
  $ 2,116     $ 229       12.1 %   $ 1,887     $ (347 )     (15.5 )%   $ 2,234  
                                                         
 
 
* Percentage change does not provide a meaningful comparison.
 
Reportable Segments — The most significant items affecting the results of operations of our four geographic Groups during the three-year period ended December 31, 2010 are summarized below:
 
  •  revenue growth from yield on our base business;
 
  •  market prices for recyclable commodities reflected significant improvement year-over-year during 2010 and a sharp decline during 2009 as compared with 2008;
 
  •  the accretive benefits of recent acquisitions, in particular during 2010 and to a lesser extent during 2009;
 
  •  continued volume declines due to economic conditions, increased pricing, competition and recent trends of waste reduction and waste diversion by consumers;
 
  •  increasing direct and indirect costs for diesel fuel, which outpaced the related revenue growth from our fuel surcharge program in both 2010 and 2009, although a portion of the 2010 shortfall was reduced during the fourth quarter due, in part, to changes we made in our fuel surcharge program; and
 
  •  higher salaries and wages due to annual merit increases that were effective in July 2009 for hourly employees and in April 2010 for both salaried and hourly employees.
 
The comparability of each of our geographic Groups’ operating results for the periods was also affected by the restructuring charges recognized during the year ended December 31, 2009.
 
Other significant items affecting the comparability of our Groups’ results of operations for the years ended December 31, 2010, 2009 and 2008 are summarized below:
 
Eastern — During 2009, the Group recognized (i) an $18 million increase in revenues and income from operations associated with an oil and gas lease at one of our landfills; and (ii) a $9 million charge related to bargaining unit employees in New Jersey agreeing to our proposal to withdraw them from an underfunded multiemployer pension fund.
 
During 2008, the Group’s operating income was negatively affected by a $14 million charge related to the withdrawal of certain collective bargaining units from underfunded multiemployer pension plans.
 
Midwest — The income from operations of our Midwest Group for 2010 was significantly affected by the recognition of charges of $26 million as a result of employees of five bargaining units in Michigan and Ohio agreeing to our proposal to withdraw them from an underfunded multiemployer pension plan.


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The Group’s 2008 operating results were negatively affected by $44 million of additional operating expenses primarily incurred as a result of a labor dispute in Milwaukee, Wisconsin. Included in the labor dispute expenses were $32 million in charges related to the withdrawal of certain of the Group’s bargaining units from underfunded multiemployer pension plans.
 
Additionally, when comparing the average exchange rate for 2010 with 2009, the Canadian exchange rate strengthened by 10%, which increased the Group’s income from operations. When comparing the average exchange rate for 2009 with 2008, the Canadian exchange rate weakened by 7%, which decreased the Group’s income from operations. The effects of foreign currency translation were the most significant to this Group because substantially all of our Canadian operations are managed by our Midwest Group.
 
Southern — Additional volumes from oil spill clean-up activities along the Gulf Coast and lower repair and maintenance costs favorably impacted the Group’s 2010 income from operations.
 
During 2008, the Group’s operating income was favorably affected by $29 million of divestiture gains, offset, in part, by a $3 million landfill impairment charge. Also favorably affecting the comparison of the Group’s results in 2009 as compared with 2008 was the recognition of $9 million of favorable adjustments during 2009 resulting from changes in estimates associated with our obligations for landfill capping, closure and post-closure. Similar favorable adjustments impacted the Group’s results during 2010.
 
Western — The Group’s 2010 income from operations includes $12 million of additional “Selling, general and administrative” expense recognized as a result of a litigation settlement.
 
The Group’s 2009 income from operations includes the recognition of an impairment charge of $27 million as a result of a change in expectations for the future operations of an inactive landfill in California.
 
Further affecting the comparison of 2010 results with 2009 was the recognition of $7 million of favorable adjustments to landfill amortization expense during 2010 associated with our obligations for landfill capping, closure and post-closure, and a net $5 million of expense recognized for adjustments related to these obligations during 2009. The unfavorable adjustments during 2009 primarily related to a closed landfill in Los Angeles, California for which the Group recognized additional amortization expense. The additional expense in 2009 did not affect the comparison to 2008 because, during 2008, we recognized an unfavorable adjustment at the same landfill which was of a similar magnitude.
 
Wheelabrator — The decrease in the income from operations of our Wheelabrator Group for the year ended December 31, 2010 as compared to 2009 was driven by an increase in maintenance-related outages as compared with the prior year, which resulted in decreased electricity generation and increased plant maintenance costs. These increases are attributable to the acceleration of repair and maintenance expenses at our facility in Portsmouth, Virginia that we acquired in April 2010, and expenses at certain of our other facilities. The Group also experienced an increase in litigation settlement costs as compared with 2009. These unfavorable items were partially offset by the benefit of increased revenues from the sale of metals.
 
The comparability of the Group’s 2009 income from operations with 2008 was significantly affected by (i) a decline in market prices for electricity, which had a significant impact on the Group’s results in 2009 due to the expiration of several long-term energy contracts and short-term pricing arrangements; (ii) an increase in costs for international and domestic business development activities; and (iii) an increase in “Operating” expenses of $11 million as a result of a significant increase in the property taxes assessed for one of our waste-to-energy facilities. Exposure to current electricity market prices increased from 24% of total electricity production in 2008 to 46% in 2009.
 
Significant items affecting the comparability of the remaining components of our results of operations for the years ended December 31, 2010, 2009 and 2008 are summarized below:
 
Other — Our “Other” income from operations includes (i) the effects of those elements of our in-plant services, landfill gas-to-energy operations, and third-party subcontract and administration revenues managed by our Upstream®, Renewable Energy and Strategic Accounts organizations, respectively, that are not included with the operations of our reportable segments; (ii) our recycling and electronic recycling brokerage services; and (iii) the impacts of investments that we are making in expanded service offerings such as portable


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self-storage and fluorescent lamp recycling. In addition, our “Other” income from operations reflects the impacts of non-operating entities that provide financial assurance and self-insurance support for the Groups or financing for our Canadian operations and also includes certain year-end adjustments recorded in consolidation related to the reportable segments that were not included in the measure of segment profit or loss used to assess their performance for the periods disclosed.
 
The slight improvement in operating results for our “Other” businesses during 2010 as compared with 2009 is due to improvements in our recycling brokerage business as a result of higher recycling commodity prices this year, largely offset by the unfavorable effects of (i) additional costs in the current year to support the Company’s strategic plan to grow into new markets and provide expanded service offerings and (ii) certain year-end adjustments recorded in consolidation related to our reportable segments that were not included in the measure of segment income from operations used to assess their performance for the periods disclosed. For 2010, the adjustments were primarily related to $15 million of additional expense recognized for litigation reserves and associated costs in the Southern and Wheelabrator Groups.
 
The unfavorable change in 2009 operating results compared with 2008 is largely due to (i) the effect that the previously discussed lower recycling commodity prices had on our recycling brokerage activities; (ii) an increase in costs incurred to support the identification and development of new lines of business that will complement our core business; (iii) the unfavorable impact lower energy prices during 2009 had on our landfill-gas-to-energy operations; and (iv) certain year-end adjustments recorded in consolidation related to our reportable segments that were not included in the measure of segment income from operations used to assess their performance for the periods disclosed.
 
Corporate and Other — Significant items affecting the comparability of expenses for the periods presented include:
 
  •  a benefit of $128 million when comparing 2010 with 2009 associated with the revenue management software implementation that was suspended in 2007 and abandoned in 2009, comprised of (i) a current year benefit of $77 million resulting from a one-time cash payment from a litigation settlement that occurred in April 2010 and (ii) $51 million in charges recognized during 2009 for the abandonment of the licensed software;
 
  •  the recognition of net charges of $50 million during 2010 for estimates associated with environmental remediation liabilities at four closed sites;
 
  •  the recognition of $34 million of favorable adjustments during 2009 by our closed sites management group due to increases in U.S. Treasury rates used to estimate the present value of our environmental remediation obligations and environmental remediation recovery assets, while in 2010 and 2008 the same group recognized charges to landfill operating costs of $2 million and $32 million, respectively, due to declines in U.S. Treasury rates during those periods;
 
  •  the recognition of $9 million in restructuring charges during 2009;
 
  •  a significant increase in “Selling, general and administrative” expenses during 2010 as result of cost increases related to our equity compensation, consulting fees, bonus expense, annual salary and wage increases and headcount increases to support the Company’s strategic initiatives; partially offset by a favorable litigation settlement during the third quarter of 2010; and
 
  •  a significant decline in “Selling, general and administrative” expenses in 2009 as compared with 2008 resulting from workforce reductions associated with the January 2009 restructuring, increased efforts to reduce our controllable spending and lower equity compensation costs.
 
Renewable Energy Operations
 
We have extracted value from the waste streams we manage for years, and we are focusing on increasing our ability to do so, particularly in the field of clean and renewable energy. Most significantly, our current operations produce renewable energy through the waste-to-energy facilities that are managed by our Wheelabrator Group and our landfill gas-to-energy operations. We are actively seeking opportunities to enhance our existing renewable


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energy service offerings to ensure that we can respond to the shifting demands of consumers and to ensure that we are acting as a leader in environmental stewardship.
 
We are disclosing the following supplemental information related to the operating results of our renewable energy operations for 2010 (in millions) because we believe that it provides information related to the significance of our current renewable energy operations, the profitability of these operations and the costs we are incurring to develop these operations:
 
                                 
          Landfill Gas-
    Growth
       
    Wheelabrator     to-Energy(a)     Opportunities(b)     Total  
 
Operating revenues (including intercompany)
  $ 889     $ 126     $     $ 1,015  
Costs and expenses:
                               
Operating
    512       51       2       565  
Selling, general & administrative
    99       3       3       105  
Depreciation and amortization
    64       24             88  
                                 
      675       78       5       758  
                                 
Income (loss) from operations
  $ 214     $ 48     $ (5 )   $ 257  
                                 
 
 
(a) Our landfill gas-to-energy business focuses on generating a renewable energy source from the methane that is produced as waste decomposes. The operating results include the revenues and expenses of landfill gas-to-energy plants that we own and operate, as well as revenues generated from the sale of landfill gas to third-party owner/operators. The operating results of our landfill gas-to-energy business are included within our geographic reportable segments and “Other”.
 
(b) Includes businesses and entities we have acquired or invested in through our organic growth group’s business development efforts. These businesses include a landfill gas-to-LNG facility; landfill gas-to-diesel fuels technologies; organic waste streams-to-fuels technologies; and other engineered fuels technologies. The operating results of our Growth Opportunities are included within “Other” in our assessment of our income from operations by segment.
 
Interest Expense
 
Our interest expense was $473 million in 2010, $426 million in 2009 and $455 million in 2008. When comparing 2010 with 2009, the significant increase in our interest expense is primarily due to (i) the issuance of an additional $600 million of senior notes in November 2009 to support acquisitions and investments made throughout 2010, (ii) significantly higher costs related to the execution and maintenance of our revolving credit facility, which was refinanced in June 2010, and (iii) a decrease in benefits to interest expense provided by active interest rate swaps as a result of decreases in the notional amount of swaps outstanding. These increases in interest expense were offset, in part, by a decline in market interest rates, which has reduced the interest costs of our tax-exempt borrowings and our Canadian credit facility.
 
When comparing 2009 with 2008, the decrease in interest expense was primarily due to declines in market interest rates, which increased the benefits to interest expense provided by our active interest rate swap agreements and reduced the interest expense associated with our tax-exempt bonds and our Canadian credit facility.
 
Interest income
 
Interest income was $4 million in 2010, $13 million in 2009 and $19 million in 2008. The decreases in interest income are primarily related to a decline in market interest rates. Although our average cash and cash equivalents balances increased each year, near-historic low short-term interest rates have resulted in insignificant interest income being generated on current balances.


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Equity in Net Losses of Unconsolidated Entities
 
During 2010, our “Equity in net losses of unconsolidated entities” was primarily related to our noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. The equity losses generated by the limited liability company were more than offset by tax benefits realized as a result of this investment as discussed below in Provision for Income Taxes. Refer to Note 9 to the Consolidated Financial Statements for more information related to our federal low-income housing investment.
 
Provision for Income Taxes
 
We recorded provisions for income taxes of $629 million in 2010, $413 million in 2009 and $669 million in 2008. These tax provisions resulted in an effective income tax rate of approximately 38.5%, 28.1%, and 37.2% for 2010, 2009 and 2008, respectively. The comparability of our reported income taxes for the years ended December 31, 2010, 2009 and 2008 is primarily affected by (i) variations in our income before income taxes; (ii) the utilization of a capital loss carry-back; (iii) the realization of state net operating loss and credit carry-forwards; (iv) changes in effective state and Canadian statutory tax rates; (v) tax audit settlements; and (vi) the impact of federal low-income housing tax credits. The impacts of these items are summarized below:
 
  •  Capital Loss Carry-back — During 2009, we generated a capital loss from the liquidation of a foreign subsidiary. We determined that the capital loss could be utilized to offset capital gains from 2006 and 2007, which resulted in a reduction to our 2009 “Provision for income taxes” of $65 million.
 
  •  State Net Operating Loss and Credit Carry-forwards — During 2010, 2009 and 2008, we released state net operating loss and credit carry-forwards resulting in a reduction to our “Provision for income taxes” for those periods of $4 million, $35 million and $3 million, respectively.
 
  •  Canadian and State Tax Rate Changes — During 2009, the provincial tax rates in Ontario were reduced, which resulted in a $13 million tax benefit as a result of the revaluation of the related deferred tax balances.
 
During 2010, our current state tax rate increased from 6.25% to 6.75% resulting in an increase to our provision for income taxes of $5 million. In addition, our state deferred income taxes increased $37 million to reflect the impact of changes in the estimated tax rate at which existing temporary differences will be realized. During 2009, our current state tax rate increased from 6.0% to 6.25% and our deferred state tax rate increased from 5.5% to 5.75%, resulting in an increase to our income taxes of $3 million and $6 million, respectively. During 2008, our current state tax rate increased from 5.5% to 6.0%, resulting in an increase to our income taxes of $5 million. The increases in these rates are primarily due to changes in state law. The comparison of our effective state tax rate during the reported periods has also been affected by return-to-accrual adjustments, which increased our “Provision for income taxes” in 2010 and reduced our “Provision for income taxes” in 2009 and 2008.
 
  •  Tax Audit Settlements — The settlement of various tax audits resulted in reductions in income tax expense of $8 million for the year ended December 31, 2010, $11 million for the year ended December 31, 2009 and $26 million for the year ended December 31, 2008.
 
  •  Federal Low-income Housing Tax Credits — Our federal low-income housing investment and the resulting credits reduced our provision for income taxes by $26 million for the year ended December 31, 2010. Refer to Note 9 to the Consolidated Financial Statements for more information related to our federal low-income housing investment.
 
We expect our 2011 recurring effective tax rate will be approximately 35.7% based on expected income levels and additional Section 45 tax credits resulting from our investment in a refined coal facility. Specifically, in January 2011, we acquired a noncontrolling interest in a limited liability company established to invest in and manage a refined coal facility. The facility’s refinement processes qualify for federal tax credits which we expect to realize through 2019 in accordance with Section 45 of the Internal Revenue Code.
 
The Small Business Jobs Act, signed into law in September 2010, contains a tax incentive package that includes a one-year extension through 2010 of the 50 percent bonus, or accelerated, depreciation provision first enacted in 2008 and subsequently renewed in 2009. The provision had expired at the end of 2009. Under the bonus depreciation provision, 50 percent of the basis of qualified capital expenditures may be deducted in the year the


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property is placed in service and the remaining 50 percent deducted under normal depreciation rules. The acceleration of deductions on 2010 capital expenditures resulting from the bonus depreciation provision had no impact on our effective tax rate. However, the ability to accelerate depreciation deductions did decrease our 2010 cash taxes by $60 million. Taking the accelerated tax depreciation will result in increased cash taxes in future periods when the accelerated deductions for these capital expenditures would have otherwise been taken.
 
In addition, new tax law signed on December 17, 2010 includes an extension of the bonus depreciation allowance through the end of 2011, and increases the amount of qualifying capital expenditures that can be depreciated immediately from 50 percent to 100 percent. The 100 percent depreciation deduction applies to qualifying property placed in service between September 8, 2010 and December 31, 2011. The passage of the extension of bonus depreciation is estimated to decrease our 2011 cash taxes by approximately $190 million. The cash tax benefit realized in 2011 will result in increased cash taxes in future periods when the deduction for these capital expenditures would have otherwise been realized.
 
Noncontrolling Interests
 
Net income attributable to noncontrolling interests was $49 million in 2010, $66 million in 2009 and $41 million in 2008. In each period, these amounts have been principally related to third parties’ equity interests in two limited liability companies that own three waste-to-energy facilities operated by our Wheelabrator Group. However the comparison of these amounts for the reported periods has been affected by (i) our January 2010 acquisition of a controlling financial interest in a portable self-storage business and (ii) the deconsolidation of certain capping, closure, post-closure and environmental remediation trusts as a result of our implementation of authoritative accounting guidance, effective January 1, 2010, associated with variable interest entities.
 
Landfill and Environmental Remediation Discussion and Analysis
 
We owned or operated 266 solid waste and five secure hazardous waste landfills at December 31, 2010 and we owned or operated 268 solid waste and five hazardous waste landfills at December 31, 2009. At December 31, 2010 and 2009, the expected remaining capacity, in cubic yards and tonnage of waste that can be accepted at our owned or operated landfills, is shown below (in millions):
 
                                                 
    December 31, 2010   December 31, 2009
    Remaining
          Remaining
       
    Permitted
  Expansion
  Total
  Permitted
  Expansion
  Total
    Capacity   Capacity   Capacity   Capacity   Capacity   Capacity
 
Remaining cubic yards
    4,793       600       5,393       4,546       739       5,285  
Remaining tonnage
    4,391       603       4,994       4,075       726       4,801  
 
Based on remaining permitted airspace as of December 31, 2010 and projected annual disposal volumes, the weighted average remaining landfill life for all of our owned or operated landfills is approximately 40 years. Many of our landfills have the potential for expanded disposal capacity beyond what is currently permitted. We monitor the availability of permitted disposal capacity at each of our landfills and evaluate whether to pursue an expansion at a given landfill based on estimated future waste volumes and prices, remaining capacity and likelihood of obtaining an expansion permit. We are seeking expansion permits at 33 of our landfills that meet the expansion criteria outlined in the Critical Accounting Estimates and Assumptions section above. Although no assurances can be made that all future expansions will be permitted or permitted as designed, the weighted average remaining landfill life for all owned or operated landfills is approximately 45 years when considering remaining permitted airspace, expansion airspace and projected annual disposal volume.


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The number of landfills we own or operate as of December 31, 2010, segregated by their estimated operating lives (in years), based on remaining permitted and expansion airspace and projected annual disposal volume, was as follows:
 
                                                 
    0 to 5     6 to 10     11 to 20     21 to 40     41+     Total  
 
Owned
    12       7       34       70       87       210  
Operated through lease(a)
    5       5       4       3       9       26  
Operating contracts(b)
    10       5       11       4       5       35  
                                                 
Total landfills
    27       17       49       77       101       271  
                                                 
 
 
(a) From an operating perspective, landfills we operate through lease agreements are similar to landfills we own because we own the landfill’s operating permit and will operate the landfill for the entire lease term, which in many cases is the life of the landfill. We are usually responsible for the capping, closure and post-closure obligations of the landfills we lease.
 
(b) For operating contracts, the property owner owns the permit and we operate the landfill for a contracted term, which may be the life of the landfill. However, we are generally responsible for capping, closure and post-closure obligations under the operating contracts.
 
The following table reflects landfill capacity and airspace changes, as measured in tons of waste, for landfills owned or operated by us during the years ended December 31, 2010 and 2009 (in millions):
 
                                                 
    December 31, 2010     December 31, 2009  
    Remaining
                Remaining
             
    Permitted
    Expansion
    Total
    Permitted
    Expansion
    Total
 
    Capacity     Capacity     Capacity     Capacity     Capacity     Capacity  
 
Balance, beginning of year
    4,075       726       4,801       3,979       794       4,773  
Acquisitions, divestitures, newly permitted landfills and closures
    14             14       33             33  
Changes in expansions pursued(a)
          120       120             83       83  
Expansion permits granted(b)
    238       (238 )           129       (129 )      
Airspace consumed
    (91 )           (91 )     (92 )           (92 )
Changes in engineering estimates and other(c)
    155       (5 )     150       26       (22 )     4  
                                                 
Balance, end of year
    4,391       603       4,994       4,075       726       4,801  
                                                 
 
 
(a) Amounts reflected here relate to the combined impacts of (i) new expansions pursued; (ii) increases or decreases in the airspace being pursued for ongoing expansion efforts; (iii) adjustments for differences between the airspace being pursued and airspace granted and (iv) decreases due to decisions to no longer pursue expansion permits.
 
(b) We received expansion permits at 13 of our landfills during 2010 and ten of our landfills during 2009, demonstrating our continued success in working with municipalities and regulatory agencies to expand the disposal capacity of our existing landfills.
 
(c) Changes in engineering estimates can result in changes to the estimated available remaining capacity of a landfill or changes in the utilization of such landfill capacity, affecting the number 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; initial and projected waste density; estimated number of years of life remaining; depth of underlying waste; anticipated access to moisture through precipitation or recirculation of landfill leachate; and operating practices. We continually focus on improving the utilization of


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airspace through efforts that include recirculating landfill leachate where allowed by permit; optimizing the placement of daily cover materials; and increasing initial compaction through improved landfill equipment, operations and training.
 
The tons received at our landfills in 2010 and 2009 are shown below (tons in thousands):
 
                                                 
    2010     2009  
    # of
    Total
    Tons
    # of
    Total
    Tons
 
    Sites     Tons     per Day     Sites     Tons     per Day  
 
Solid waste landfills
    266 (a)     91,863       336       268       91,901       337  
Hazardous waste landfills
    5       667       2       5       1,026       4  
                                                 
      271       92,530       338       273       92,927       341  
                                                 
Solid waste landfills closed or divested during related year
    3       295               4       328          
                                                 
              92,825 (b)                     93,255 (b)        
                                                 
 
 
(a) In 2010, we developed one landfill, closed two landfills and our contract expired at one landfill.
 
(b) These amounts include 1.7 million tons at December 31, 2010 and 1.5 million tons at December 31, 2009 that were received at our landfills but were used for beneficial purposes and generally were redirected from the permitted airspace to other areas of the landfill. Waste types that are frequently identified for beneficial use include green waste for composting and clean dirt for on-site construction projects.
 
When a landfill we own or operate receives certification of closure from the applicable regulatory agency, we generally transfer the management of the site, including any remediation activities, to our closed sites management group. As of December 31, 2010, our closed sites management group managed 202 closed landfills.
 
Landfill Assets — We capitalize various costs that we incur to prepare a landfill to accept waste. These costs generally include expenditures for land (including the landfill footprint and required landfill buffer property), permitting, excavation, liner material and installation, landfill leachate collection systems, landfill gas collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized interest, and on-site road construction and other capital infrastructure costs. The cost basis of our landfill assets also includes estimates of future costs associated with landfill capping, closure and post-closure activities, which are discussed further below.
 
The following table reflects the total cost basis of our landfill assets and accumulated landfill airspace amortization as of December 31, 2010 and 2009, and summarizes significant changes in these amounts during 2010 (in millions):
 
                         
          Accumulated
       
    Cost Basis of
    Landfill Airspace
       
    Landfill Assets     Amortization     Landfill Assets  
 
December 31, 2009
  $ 12,301     $ (6,448 )   $ 5,853  
Capital additions
    428             428  
Asset retirement obligations incurred and capitalized
    47             47  
Acquisitions
                 
Amortization of landfill airspace
          (372 )     (372 )
Foreign currency translation
    70       (19 )     51  
Asset retirements and other adjustments
    (69 )     47       (22 )
                         
December 31, 2010
  $ 12,777     $ (6,792 )   $ 5,985  
                         
 
As of December 31, 2010, we estimate that we will spend approximately $400 million in 2011, and approximately $1 billion in 2012 and 2013 combined for the construction and development of our landfill assets. The specific timing of landfill capital spending is dependent on future events and spending estimates are subject to


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change due to fluctuations in landfill waste volumes, changes in environmental requirements and other factors impacting landfill operations.
 
Landfill and Environmental Remediation Liabilities — As we accept waste at our landfills, we incur significant asset retirement obligations, which include liabilities associated with landfill capping, closure and post-closure activities. These liabilities are accounted for in accordance with authoritative guidance associated with accounting for asset retirement obligations, 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 damage caused by conditions that existed before we acquired operations or a site. We recognize environmental remediation liabilities when we determine that the liability is probable and the estimated cost for the likely remedy can be reasonably estimated.
 
The following table reflects our landfill liabilities and our environmental remediation liabilities as of December 31, 2010 and 2009, and summarizes significant changes in these amounts during 2010 (in millions):
 
                 
          Environmental
 
    Landfill     Remediation  
 
December 31, 2009
  $ 1,267     $ 256  
Obligations incurred and capitalized
    47        
Obligations settled
    (86 )     (36 )
Interest accretion
    82       5  
Revisions in cost estimates and interest rate assumptions
    (49 )     61  
Acquisitions, divestitures and other adjustments
    5       (2 )
                 
December 31, 2010
  $ 1,266     $ 284  
                 
 
Landfill Costs and Expenses — As disclosed in the Operating Expenses section above, our landfill operating costs include interest accretion on asset retirement obligations, interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets, leachate and methane collection and treatment, landfill remediation costs, and other landfill site costs. The following table summarizes these costs for each of the three years indicated (in millions):
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Interest accretion on landfill liabilities
  $ 82     $ 80     $ 77  
Interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets
    8       (30 )     41  
Leachate and methane collection and treatment
    64       69       69  
Landfill remediation costs
    63       23       17  
Other landfill site costs
    77       80       87  
                         
Total landfill operating costs
  $ 294     $ 222     $ 291  
                         
 
The comparison of these costs for the reported periods has been significantly affected by accounting for changes in the risk-free discount rate that we use to estimate the present value of our environmental remediation liabilities and environmental remediation recovery assets, which is based on the rate for U.S. Treasury bonds with a term approximating the weighted-average period until settlement of the underlying obligations. Additionally, in 2010, we increased our cost estimates associated with environmental remediation obligations primarily based on a review and evaluation of existing remediation projects. As these remediation projects progressed, more defined reclamation plans were developed, resulting in an increase in remediation expense to reflect the more likely remedies.


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Amortization of landfill airspace, which is included as a component of “Depreciation and amortization” expense, includes the following:
 
  •  the amortization of landfill capital costs, including (i) costs that have been incurred and capitalized and (ii) estimated future costs for landfill development and construction required to develop our landfills to their remaining permitted and expansion airspace; and
 
  •  the amortization of asset retirement costs arising from landfill capping, closure and post-closure obligations, including (i) costs that have been incurred and capitalized and (ii) projected asset retirement costs.
 
Amortization expense is recorded on a units-of-consumption basis, applying cost as a rate per ton. The rate per ton is calculated by dividing each component of the amortizable basis of a landfill by the number of tons needed to fill the corresponding asset’s airspace. Landfill capital costs and closure and post-closure asset retirement costs are generally incurred to support the operation of the landfill over its entire operating life, and are, therefore, amortized on a per-ton basis using a landfill’s total airspace capacity. Capping asset retirement costs are attributed to a specific capping event, and are, therefore, amortized on a per-ton basis using each discrete capping event’s estimated airspace capacity. Accordingly, each landfill has multiple per-ton amortization rates.
 
The following table calculates our landfill airspace amortization expense on a per-ton basis:
 
                         
    Years Ended December 31,
    2010   2009   2008
 
Amortization of landfill airspace (in millions)
  $ 372     $ 358     $ 429  
Tons received, net of redirected waste (in millions)
    91       92       107  
Average landfill airspace amortization expense per ton
  $ 4.08     $ 3.90     $ 4.01  
 
Different per-ton amortization rates are applied at each of our 271 landfills, and per-ton amortization rates vary significantly from one landfill to another due to (i) inconsistencies that often exist in construction costs and provincial, state and local regulatory requirements for landfill development and landfill capping, closure and post-closure activities; and (ii) differences in the cost basis of landfills that we develop versus those that we acquire. Accordingly, our landfill airspace amortization expense measured on a per-ton basis can fluctuate due to changes in the mix of volumes we receive across the Company year-over-year. The comparability of our total Company average landfill airspace amortization expense per ton for the years ended December 31, 2010, 2009 and 2008 has also been affected by the recognition of reductions to amortization expense for changes in our estimates related to our capping, closure and post-closure obligations. Landfill amortization expense was reduced by $13 million in 2010, $14 million in 2009 and $3 million in 2008, for the effects of these changes in estimates. In each year, the majority of the reduced expense resulted from revisions in the estimated timing or cost of capping events that were generally the result of (i) concerted efforts to improve the operating efficiencies of our landfills and volume declines, both of which have allowed us to delay spending for capping activities; (ii) effectively managing the cost of capping material and construction; or (iii) landfill expansions that resulted in reduced or deferred capping costs.
 
Liquidity and Capital Resources
 
We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business activities that may arise during the year as a result of 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 and landfill equipment; (iii) construction, refurbishments and improvements at waste-to-energy and materials recovery facilities; (iv) the container and equipment needs of our operations; (v) capping, closure and post-closure activities at our landfills; (vi) the repayment of debt and discharging of other obligations; and (vii) investments and acquisitions that we believe will be accretive and provide continued growth in our business. We also are committed to providing our shareholders with a return on their investment through our capital allocation program that provides for dividend payments and share repurchases.


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The following is a summary of our cash and cash equivalents, restricted trust and escrow accounts and debt balances as of December 31, 2010 and 2009 (in millions):
 
                 
    2010     2009  
 
Cash and cash equivalents
  $ 539     $ 1,140  
                 
Restricted trust and escrow accounts:
               
Capping, closure, post-closure and environmental remediation funds
  $ 124     $ 231  
Tax-exempt bond funds
    14       65  
Other
    8       10  
                 
Total restricted trust and escrow accounts
  $ 146     $ 306  
                 
Debt:
               
Current portion
  $ 233     $ 749  
Long-term portion
    8,674       8,124  
                 
Total debt
  $ 8,907     $ 8,873  
                 
Increase in carrying value of debt due to hedge accounting for interest rate swaps
  $ 79     $ 91  
                 
 
Cash and cash equivalents — Cash and cash equivalents consist primarily of cash on deposit and money market funds that invest in U.S. government obligations with original maturities of three months or less. The year-over-year decrease in our cash balances is largely attributable to our November 2009 senior note issuance. We used a significant portion of the proceeds of this debt issuance to fund investments and acquisitions during the first half of 2010, including (i) our acquisition of a waste-to-energy facility in Portsmouth, Virginia for $150 million and (ii) our purchase of a 40% equity investment in SEG, a subsidiary of Shanghai Chengtou Holding Co., Ltd., for $142 million. Pending application of the offering proceeds as described, we temporarily invested the proceeds in money market funds, which were reflected as cash equivalents in our December 31, 2009 Consolidated Balance Sheet.
 
Restricted trust and escrow accounts — Restricted trust and escrow accounts consist primarily of (i) funds deposited for purposes of settling landfill capping, closure, post-closure and environmental remediation obligations; and (ii) funds received from the issuance of tax-exempt bonds held in trust for the construction of various projects or facilities. These balances are primarily included within long-term “Other assets” in our Consolidated Balance Sheets.
 
The decrease in capping, closure, post-closure and environmental remediation funds from December 31, 2009 is due to our implementation of revised accounting guidance related to the consolidation of variable interest entities. Effective January 1, 2010, we were required to deconsolidate trusts for which power over significant activities is shared, which reduced our restricted trust and escrow accounts by $109 million. Beginning in 2010, our interests in these variable interest entities were accounted for as investments in unconsolidated entities and receivables. These amounts are recorded in “Other receivables” and as long-term “Other assets” in our Consolidated Balance Sheet.
 
The decrease in tax-exempt bond funds is attributable to reimbursements distributed to us by the trust funds for approved construction and equipment expenditures and to a decrease in new tax-exempt borrowings.
 
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 a long-term basis, but also use other instruments and facilities when appropriate. The components of our long-term borrowings as of December 31, 2010 are described in Note 7 to the Consolidated Financial Statements.
 
Changes in our outstanding debt balances from December 31, 2009 to December 31, 2010 can primarily be attributed to (i) $908 million of cash borrowings, including $592 million in net proceeds from the June 2010 issuance of $600 million of senior notes; (ii) the cash repayment of $1,112 million of outstanding borrowings at


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their scheduled maturities, including the repayment of $600 million of senior notes in August 2010 and; (iii) our investment in an entity that invests in and manages federal low-income housing projects, which increased our debt obligation by $215 million.
 
As of December 31, 2010, we had (i) $502 million of debt maturing within twelve months, including U.S.$212 million under our Canadian credit facility and $147 million of 7.65% senior notes that mature in March 2011; and (ii) $405 million of fixed-rate tax-exempt borrowings subject to re-pricing within the next twelve months. The amount reported as the current portion of long-term debt as of December 31, 2010 excludes $674 million of these amounts because we have the intent and ability to refinance portions of our current maturities on a long-term basis.
 
We have credit facilities 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 type of facility:
 
                 
    2010     2009  
 
Revolving credit facility(a)
  $ 1,138     $ 1,578  
Letter of credit facilities(b)
    505       371  
Other(c)
    237       173  
                 
    $ 1,880     $ 2,122  
                 
 
 
(a) In June 2010, we entered into a three-year, $2.0 billion revolving credit facility, replacing the $2.4 billion revolving credit facility that would have matured in August 2011. At December 31, 2010, we had no outstanding borrowings and $1,138 million of letters of credit issued and supported by the facility. The unused and available credit capacity was $862 million at December 31, 2010.
 
(b) As of December 31, 2010, we had an aggregate committed capacity of $505 million under letter of credit facilities with maturities that extend from June 2013 to June 2015. As of December 31, 2010, no borrowings were outstanding under these letter of credit facilities and we had no unused or available credit capacity.
 
(c) These letters of credit are outstanding under various arrangements that do not obligate the counterparty to provide a committed capacity.
 
The decrease in the utilization of the revolving credit facility and the increase in the utilization of our letter of credit and other facilities is due to the significantly higher costs associated with the $2.0 billion revolving credit facility that was executed in June 2010.
 
Summary of Cash Flow Activity
 
The following is a summary of our cash flows for the years ended December 31 (in millions):
 
                         
    2010     2009     2008  
 
Net cash provided by operating activities
  $ 2,275     $ 2,362     $ 2,575  
                         
Net cash used in investing activities
  $ (1,606 )   $ (1,250 )   $ (1,183 )
                         
Net cash used in financing activities
  $ (1,273 )   $ (457 )   $ (1,256 )
                         
 
Net Cash Provided by Operating Activities — The most significant items affecting the comparison of our operating cash flows for 2010 and 2009 are summarized below:
 
  •  Increase in earnings — Our income from operations increased by $229 million on a year-over-year basis, driven, in part, by a favorable cash benefit of $77 million resulting from a litigation settlement in April 2010. This earnings increase was also impacted by (i) the recognition of a $51 million non-cash charge during the fourth quarter of 2009 associated with the abandonment of licensed revenue management software and (ii) the recognition of a $27 million non-cash charge in the fourth quarter of 2009 as a result of a change in expectations for the future operations of an inactive landfill in California.


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The comparison of our 2010 and 2009 income from operations was also affected by a $91 million increase in non-cash charges attributable to (i) equity-based compensation expense; (ii) interest accretion on landfill liabilities; (iii) interest accretion and discount rate adjustments on environmental remediation liabilities and recovery assets; (iv) depreciation and amortization; and (v) the impact of the withdrawal of certain bargaining units from multiemployer pension plans. While the increase in non-cash charges unfavorably affected our earnings comparison, there is no impact on net cash provided by operating activities.
 
  •  Changes in assets and liabilities, net of effects from business acquisitions and divestitures — Our cash flow from operations was negatively impacted in 2010 and favorably impacted in 2009, by changes in our working capital accounts. Although our working capital changes may vary from year to year, they are typically driven by changes in accounts receivable, which are affected by both revenue changes and timing of payments received, and accounts payable changes, which are affected by both cost changes and timing of payments. Additionally, the following are other significant items that affected our cash flow from operations:
 
  •  Increased income tax payments — Cash paid for income taxes, net of excess tax benefits associated with equity-based transactions, was approximately $86 million higher on a year-over-year basis. The comparability of our effective tax rates is discussed in the Provision for income taxes section above.
 
  •  Increased interest payments — Cash paid for interest was approximately $61 million higher on a year-over-year basis. This increase is primarily due to (i) the issuance of an additional $600 million of senior notes in November 2009 to support acquisitions and investments made throughout 2010; (ii) significantly higher costs related to the execution and maintenance of our revolving credit facility, which was refinanced in June 2010; and (iii) a decrease in benefits to interest expense provided by active interest rate swaps as a result of decreases in the notional amount of swaps outstanding.
 
  •  Settlement of Canadian hedge — In December 2010, our previously existing foreign currency hedges matured and we paid cash of $37 million upon settlement. The cash payment from the settlement has been classified as a change in accrued liabilities within “Net cash provided by operating activities” in the Consolidated Statement of Cash Flows.
 
  •  Liquidation of a foreign subsidiary — We received a $65 million federal tax refund in the third quarter of 2010 related to the liquidation of a foreign subsidiary in 2009. The cash proceeds have been classified as a change in other current assets within “Net cash provided by operating activities” in the Consolidated Statement of Cash Flows.
 
The most significant items affecting the comparison of our operating cash flows for 2009 and 2008 are summarized below:
 
  •  Decrease in earnings — Our income from operations, excluding depreciation and amortization, decreased by $419 million on a year-over-year basis. However, this earnings decline was also impacted by (i) the recognition of a $51 million non-cash charge during the fourth quarter of 2009 associated with the abandonment of licensed revenue management software and (ii) the recognition of a $27 million non-cash charge in the fourth quarter of 2009 as a result of a change in expectations for the future operations of a landfill in California.
 
Further, approximately $55 million of the year-over-year decrease in earnings is related to the impact of divestiture gains and gains on sale of assets for which the cash flow impacts are reflected in investing activities in the caption “Proceeds from divestitures of businesses and other sales of assets.”
 
The comparison of our 2009 and 2008 income from operations was also affected by an $86 million decrease in non-cash charges attributable to (i) interest accretion and discount rate adjustments on environmental remediation liabilities and recovery assets; (ii) equity-based compensation expense; and (iii) interest accretion on landfill liabilities. While the decrease in non-cash charges favorably affected our earnings comparison, there is no impact on net cash provided by operating activities.
 
  •  Change in receivables — There was a significant decrease in the operating cash flows provided by changes in our receivables balances, net of effects of acquisitions and divestitures, when comparing 2009 with 2008. This decrease is primarily attributable to unusual activity in 2008, including (i) the significant decrease in


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  sequential quarter revenues when comparing the fourth quarter of 2008 with the third quarter of 2008, which was driven by the decline in the demand and market prices for recyclable commodities; and (ii) the collection of a $60 million outstanding receivable related to our investments in synthetic fuel production facilities that provided us with Section 45K tax credits through 2007.
 
  •  Decreased income tax payments — Cash paid for income taxes, net of excess tax benefits associated with equity-based transactions, was approximately $140 million lower on a year-over-year basis. The comparability of our effective tax rates is discussed in the Provision for income taxes section above.
 
  •  Decreased interest payments — Cash paid for interest was approximately $60 million lower on a year-over-year basis. This decrease is primarily due to a decline in market interest rates, which (i) increased the benefits to our interest costs provided by our active interest rate swap agreements and (ii) reduced the interest costs associated with our variable-rate tax-exempt debt.
 
  •  Decreased bonus payments — Employee bonus payments earned in 2008, which were paid in the first quarter of 2009, were lower than the bonus payments earned in 2007 but paid in 2008 due to the relative strength of our financial performance against incentive measures in 2007 as compared with 2008. The year-over-year decrease in cash bonuses favorably affected the comparison of our cash flow from operations by approximately $35 million.
 
  •  Termination of interest rate swaps — In December 2009, we elected to terminate interest rate swaps with a notional amount of $350 million that were scheduled to mature in November 2012. Upon termination of the swaps, we received $20 million in cash for their fair value plus accrued interest receivable. The cash proceeds received from the termination of interest rate swap agreements have been classified as a change in other assets within “Net cash provided by operating activities” in the Consolidated Statement of Cash Flows.
 
  •  Accounts payable processes — Changes in our accounts payable balances have favorably impacted our year-over-year cash flow from operations change by approximately $20 million.
 
Net Cash Used in Investing Activities — The most significant items affecting the comparison of our investing cash flows for the periods presented are summarized below:
 
  •  Acquisitions — Our spending on acquisitions increased from $280 million and $281 million during 2008 and 2009, respectively, to $407 million in 2010. During the second quarter of 2010, we paid approximately $150 million to acquire a waste-to-energy facility in Portsmouth, Virginia. We continue to focus on accretive acquisitions and growth opportunities that will contribute to improved future results of operations and enhance and expand our existing service offerings.
 
  •  Capital expenditures — We used $1,104 million during 2010 for capital expenditures, compared with $1,179 million in 2009 and $1,221 million in 2008.
 
  •  Net receipts from restricted funds — Net cash received from our restricted trust and escrow accounts, which are largely generated from the issuance of tax-exempt bonds for our capital needs, contributed $48 million to our investing activities in 2010 compared with $196 million in 2009 and $178 million in 2008. The significant decrease in cash received from our restricted trust and escrow accounts during 2010 is due to a decrease in tax-exempt borrowings.
 
  •  Investments in unconsolidated entities — We made $173 million of cash investments in unconsolidated entities during 2010. These cash investments were primarily related to a $142 million payment made to acquire a 40% equity investment in Shanghai Environment Group, a subsidiary of Shanghai Chengtou Holding Co., Ltd. As a joint venture partner in SEG, we will participate in the operation and management of waste-to-energy and other waste services in the Chinese market. SEG will also focus on building new waste-to-energy facilities in China.


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Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the periods presented are summarized below:
 
  •  Share repurchases and dividend payments — Our 2010, 2009 and 2008 share repurchases and dividend payments have been made in accordance with capital allocation programs approved by our Board of Directors.
 
We paid $501 million for share repurchases in 2010, compared with $226 million in 2009 and $410 million in 2008. We repurchased approximately 15 million, 7 million and 12 million shares of our common stock in 2010, 2009 and 2008, respectively. The decline in share repurchases during 2009 is largely attributable to the suspension of our share repurchases in July 2008 in connection with a proposed acquisition and to the state of the financial markets and the economy. Given the stabilization of the capital markets and economic conditions, we elected to resume our share repurchases during the third quarter of 2009.
 
We paid an aggregate of $604 million in cash dividends during 2010, compared with $569 million in 2009 and $531 million in 2008. The increase in dividend payments is due to our quarterly per share dividend increasing from $0.27 in 2008, to $0.29 in 2009 and to $0.315 in 2010, and has been offset in part by a reduction in our common stock outstanding as a result of our share repurchase programs.
 
In December 2010, the Board of Directors announced that it expects future quarterly dividend payments will be $0.34 per share for dividends declared in 2011. All 2011 share repurchases will be made at the discretion of management, up to $575 million, as approved by the Board of Directors in December 2010, and all actual future dividends must first be declared by the Board of Directors at its discretion, with all decisions dependent on various factors, including our net earnings, financial condition, cash required for future acquisitions and investments and other factors deemed relevant.
 
  •  Proceeds from the exercise of common stock options— The exercise of common stock options and the related excess tax benefits generated a total of $54 million of financing cash inflows during 2010 compared with $20 million during 2009 and $37 million in 2008.
 
  •  Net debt repayments — Net debt repayments were $204 million in 2010, net debt borrowings were $414 million in 2009 and net debt repayments were $260 million in 2008. The following summarizes our most significant cash borrowings and debt repayments made during each year (in millions):
 
                         
    Years Ended December 31,  
    2010     2009     2008  
 
Borrowings:
                       
Revolving credit facility
  $     $     $ 350  
Canadian credit facility
    316       364       581  
Senior notes
    592       1,385       594  
                         
    $ 908     $ 1,749     $ 1,525  
                         
Repayments:
                       
Revolving credit facility
  $     $ (310 )   $ (371 )
Canadian credit facility
    (372 )     (395 )     (634 )
Senior notes
    (600 )     (500 )     (633 )
Tax exempt bonds
    (52 )     (65 )     (19 )
Tax exempt project bonds
    (39 )     (39 )     (67 )
Capital leases and other debt
    (49 )     (26 )     (61 )
                         
    $ (1,112 )   $ (1,335 )   $ (1,785 )
                         
Net borrowings (repayments)
  $ (204 )   $ 414     $ (260 )
                         
 
This summary excludes the impacts of non-cash borrowings and debt repayments. During the year ended December 31, 2010, we had a $215 million non-cash increase in our debt obligations as a result of the


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issuance of a note payable in return for a noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. This investment is discussed in detail in Note 9. For the years ended December 31, 2009 and 2008, these non-cash financing activities were primarily associated with our tax-exempt bond financings. Proceeds from tax-exempt bond issuances, net of principal repayments made directly from trust funds, were $105 million in 2009 and $169 million in 2008.
 
  •  Other — Net cash provided by other financing activities was $18 million in 2010 while net cash used in other financing activities was $50 million in 2009 and $43 million in 2008. These activities are primarily attributable to changes in our accrued liabilities for checks written in excess of cash balances due to the timing of cash deposits or payments. The cash provided by these activities in 2010 was offset, in part, by $13 million of financing costs paid to execute our new $2.0 billion revolving credit facility.
 
Summary of Contractual Obligations
 
The following table summarizes our contractual obligations as of December 31, 2010 and the anticipated effect of these obligations on our liquidity in future years (in millions):
 
                                                         
    2011     2012     2013     2014     2015     Thereafter     Total  
Recorded Obligations:
                                                       
Expected environmental liabilities(a)
                                                       
Capping, closure and post-closure
  $ 105     $ 116     $ 96     $ 102     $ 107     $ 1,943     $ 2,469  
Environmental remediation
    43       37       21       30       24       141       296  
                                                         
      148       153       117       132       131       2,084       2,765  
Debt payments(b),(c),(d)
    511       614       203       459       452       6,600       8,839  
Unrecorded Obligations:(e)
                                                       
Non-cancelable operating lease obligations
    82       76       62       51       40       215       526  
Estimated unconditional purchase obligations(f)
    85       84       58       21       16       238       502  
                                                         
Anticipated liquidity impact as of December 31, 2010
  $ 826     $ 927     $ 440     $ 663     $ 639     $ 9,137     $ 12,632  
                                                         
 
 
(a) Environmental liabilities include capping, closure, post-closure and environmental remediation costs. The amounts included here reflect environmental liabilities recorded in our Consolidated Balance Sheet as of December 31, 2010 without the impact of discounting and inflation. Our recorded environmental liabilities for capping, closure and post-closure will increase as we continue to place additional tons within the permitted airspace at our landfills.
 
(b) The amounts reported here represent the scheduled principal payments related to our long-term debt, excluding related interest. Refer to Note 7 to the Consolidated Financial Statements for information regarding interest rates.
 
(c) Our debt obligations as of December 31, 2010 include $405 million of tax-exempt bonds subject to re-pricing within the next twelve months, which is prior to their scheduled maturities. If the re-offerings of the bonds are unsuccessful, then the bonds can be put to us, requiring immediate repayment. We have classified the anticipated cash flows for these contractual obligations based on the scheduled maturity of the borrowing for purposes of this disclosure. For additional information regarding the classification of these borrowings in our Consolidated Balance Sheet as of December 31, 2010, refer to Note 7 to the Consolidated Financial Statements.
 
(d) Our recorded debt obligations include non-cash adjustments associated with discounts, premiums and fair value adjustments for interest rate hedging activities. These amounts have been excluded here because they will not result in an impact to our liquidity in future periods.
 
(e) Our unrecorded obligations represent operating lease obligations and purchase commitments from which we expect to realize an economic benefit in future periods. We have also made certain guarantees, as discussed in Note 11 to the Consolidated Financial Statements, that we do not expect to materially affect our current or future financial position, results of operations or liquidity.


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(f) Our unconditional purchase obligations are for various contractual obligations that we generally incur in the ordinary course of our business. Certain of our obligations are quantity driven. For these contracts, we have estimated our future obligations based on the current market values of the underlying products or services. Accordingly, the amounts reported in the table are not necessarily indicative of our actual cash flow obligations. See Note 11 to the Consolidated Financial Statements for discussion of the nature and terms of our unconditional purchase obligations.
 
 
As discussed in Note 9 of our Consolidated Financial Statements, we have liabilities associated with unrecognized tax benefits and related interest. These liabilities are primarily included as a component of long-term “Other liabilities” in our Consolidated Balance Sheet because the Company generally does not anticipate that settlement of the liabilities will require payment of cash within the next twelve months. We are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but do not believe that the ultimate settlement of our obligations will materially affect our liquidity.
 
 
We are party to guarantee arrangements with unconsolidated entities as discussed in the Guarantees section of Note 11 to the Consolidated Financial Statements. These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2010 nor are they expected to have a material impact on our future financial position, results of operations or liquidity.
 
Inflation
 
While inflationary increases in costs, including the cost of diesel fuel, have affected our operating margins in recent years, we believe that inflation generally has not had, and in the near future is not expected to have, any material adverse effect on our results of operations. However, as of December 31, 2010, over 35% of our collection revenues are generated under long-term agreements with price adjustments based on various indices intended to measure inflation. Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.
 
 
Multiple-Deliverable Revenue Arrangements — In October 2009, the FASB amended authoritative guidance associated with multiple-deliverable revenue arrangements. This amended guidance addresses the determination of when individual deliverables within an arrangement may be treated as separate units of accounting and modifies the manner in which consideration is allocated across the separately identifiable deliverables. The amendments to authoritative guidance associated with multiple-deliverable revenue arrangements became effective for the Company on January 1, 2011. The new accounting standard may be applied either retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the date of adoption. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.