2. Cautionary Statement
Certain statements provided in this presentation are “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When we use words like “may,” “should,” “could,”
“will,” “likely,” “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “goal,”
“target,” or “outlook,” or references to future time periods, strategies, designs,
objectives, schedules, projections, intentions, desires, or beliefs, we are making forward-
looking statements. We make these statements in an effort to keep stockholders and the
public informed about our business. You should view these statements with caution.
They are not guarantees of future performance or events. All phases of our business are
subject to uncertainties, risks and other influences, many of which we have no control
over. These risks and uncertainties are described in greater detail in Waste
Management’s Form 10-K for the year ended December 31, 2008, as filed with the
Securities and Exchange Commission. We assume no obligation to update any forward-
looking statements as a result of future events or developments.
2
3. Non-GAAP Financial Measures
This presentation contains non-GAAP financial measures under Regulation G of the
Securities Exchange Act of 1934, as amended. The Company believes that providing
investors with these non-GAAP financial measures gives investors additional
information to enable them to assess, in the way management assesses, the Company’s
current and continuing results of operations and cash available for the Company’s
capital allocation program. These non-GAAP measures are meant to supplement, not
substitute for, comparable GAAP measures. A reconciliation of these non-GAAP
financial measures to their corresponding GAAP financial measures are included in
slides 38 through 41 of this presentation, which you are urged to consider.
3
4. Industry Overview
• Waste Business Journal estimates that the North American waste
industry generates $52 billion in annual revenue
– WMI holds about a 26% market share on that basis; publicly traded companies ~60%
• Industry characteristics include:
– Key assets are disposal facilities
• Top 2 publicly traded companies own over 60% of landfill capacity
– Cash flows are strong and consistent
• ~413 million tons of municipal solid waste generated in U.S.
– 65% landfilled, 7% combusted in waste to energy plants, 28% recycled
Source: Waste Business Journal, BioCycle and Company reports
4
5. Waste Management’s Footprint
• 2008 annual revenues of $13.4 billion
– Waste Management ranked 199th on the April 2008 Fortune 500 list
– $20.2 billion in total assets and $5.9 billion in stockholders’ equity
• We serve nearly 20 million customers and employ
approximately 45,000 people
• We remain focused on operational excellence and disciplined
pricing models
Note: as of 12/31/2008
5
6. Waste Management’s Footprint
• Waste Management has the largest and best collection of
assets in the industry:
– Operate in 48 states, Canada, and Puerto Rico
– Over 360 collection operations & a fleet of ~21,000 collection vehicles
– 273 landfills receive 108 million tons per year with an average permitted capacity of 32
years
Largest provider of recycling services in North America with 104 recycling facilities;
–
Waste Management Recycling markets 8 million tons per year
16 waste-to-energy plants process 7 million tons per year and generate 836 megawatts
–
of electricity
Leading developer and operator of landfill gas to energy projects, with over 100 energy
–
plants at our landfills, generating about 500 megawatts of electricity
Provide power to the equivalent of over one million homes
–
Note: as of 12/31/2008
6
7. Waste Management Company Overview
Revenue by Reportable Segments and Dynamics
• Largest provider of integrated
WMRA &
waste services in North
Other
Eastern
America
Group
Wheelabrator
• Recession resistant business
9%
with balanced geographic
6% footprint
20%
• Consistency driven by
essential nature of service and
Western
diverse customer base
Group
21% • Over $3.7 billion in annual
20% revenue from public sector
contracts including:
Midwest
Franchise markets
–
Group
24% Municipal contracts
–
Southern
Group
As of 12-31-08; reportable segments based on gross revenues; industry revenues based on company reports
7
8. Mix of Business
Recycling &
Waste-to- Other 11%
Energy 5%
Residential 31%
Collection 55% Roll-off 29%
Transfer 10%
Approximate
Collection
Landfill 19%
Mix Commercial 40%
Based on 2008 gross revenues
8
9. Consistent Operating Strategies
• Operating strategies are linked to primary financial objectives
Margin expansion
–
Earnings growth
–
Strong free cash flow
–
Increasing return on invested capital
–
• Profitable Revenue Growth
Minimum pricing targets are being set for each of our Areas, Groups and the Corporation that must be
–
met in order for eligible employees to receive the financial performance portion of their 2009 annual
bonus
Sales force and customer service initiatives designed to increase customer retention
–
Sales force will also focus on selective acquisition of new accounts
–
Organize sales programs around customer segments
–
• Cost Cutting through Operational Excellence
Continued focus on productivity, maintenance and safety
–
9
10. Consistent Operating Strategies
Continued
• Uses of Free Cash Flow
2009 Capital allocation program authorizes up to $1.3 billion
–
• ~ $570 million expected to be returned to shareholders as dividends
• Remainder is available for acquisitions, stock repurchases or debt reduction
• Acquisitions
Always looking for tuck-ins or bolt-ons that compliment our existing assets and service offerings
–
Current Economy and financial markets may result in new opportunities at attractive prices
–
• Growth opportunities in the alternate energy space
Wheelabrator Technologies through new projects to design, build and operate or design, build, own
–
and operate
Landfill gas to energy projects
–
10
12. Operational Excellence
Continue Productivity, Maintenance and Safety Improvements
• Improve operating costs per hour by increasing productivity and
flexing down costs as volumes decline
– Maximize routing efficiencies and asset utilization through use of existing standard
tools, applications and processes
– In 2008 we saw the continuation of productivity improvements in our commercial and
residential lines of business
• Improve our maintenance and customer service performance by
using our standard maintenance system and processes
– Our collection fleet improved its costs per driver hour and drove-out $35 million in
operating costs during 2008
• Safety remains a cornerstone to our operating success
– Improved TRIR by over 17% for full-year 2008
– Primary driver of year-over-year improvement in Risk Management costs
– Ended 2008 with a 4Q TRIR score of 2.9, a historic low for WMI
12
13. Driver Hour Trend
Driver Hours per Workday
190,000
180,000
170,000
160,000
150,000
140,000
130,000
120,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2006 2007 2008
13
15. Operating Costs as Adjusted*
(as a % of revenue)
2008 2007 Change
Labor 17.8% 18.1% 0.3
Disposal 7.8% 8.6% 0.8
Maintenance & Repairs 8.0% 8.1% 0.1
Subcontractor 6.7% 6.8% 0.1
COGS 6.1% 5.8% (0.3)
Fuel 5.3% 4.4% (0.9)
Fees & Taxes 4.5% 4.5% -
LF Operating Costs 1.9% 2.0% 0.1
Risk Management 1.6% 1.6% -
Other 2.9% 3.0% 0.1
Total Operating Costs 62.6% 62.9% 0.3
BLACK = Favorable RED = Unfavorable
*See slide 40 for the reconciliation of this non-GAAP financial measure to its corresponding GAAP financial measure.
15
16. Operating Costs as a % of Revenue*
68%
66.0%
as a % of Revenue
Operating Costs
66% 64.3%
62.9%
64% 62.6%
62%
60%
2005 2006 2007 2008
*See slide 40 for the reconciliation of this non-GAAP financial measure to its corresponding GAAP financial measure.
16
17. Reorganization
• In February 2009, we announced a reorganization as part of our
continuing efforts to improve efficiencies
• Restructured our field operations through consolidation by reducing
from 45 Market Areas to 25 Areas
• Additionally, we realigned our corporate staff to more efficiently
support the new field operations
• We expect restructuring charges to be approximately $50mm, primarily
in 1Q 2009
• We expect the reorganization will result in annualized savings in excess
of $100mm, with approximately 70% of this in SG&A
17
19. Recycling Update
• Market Update
– Commodity markets appear to have hit bottom in January
• Generation is down and export demand has started to return. Domestic markets have
stabilized overall but with weak pockets in the Midwest
– Overall pricing stabilized in February
• Prices have improved in the export market
• Domestically, plastic pricing has gradually moved up. Aluminum and steel pricing
remains low
• Our Response
– New contracts will reflect the new market environment
• A minimum processing fee for inbound material to cover our processing cost
• No floor pricing to the supplier of material unless outbound protection is secured
19
20. Recycling Update Continued
• Other Actions
– We are analyzing each processing plant for possible mothballing or closure
– Opportunities for new business are appearing where third party processors did not honor
their contracts with their customers
– We are attempting to renegotiate existing contracts early, but the opportunities are limited
• Guidance
– We expect a negative year over year impact of $0.15 to $0.20 in earnings per
diluted share from the decline in commodity prices
• Consistent with our announcement on the year end earnings call
• Most of the impact is expected during the first half of the year
20
22. Profitable Revenue Growth
We continue to focus on a disciplined price management process
• The Pricing Excellence programs are driving significant return through disciplined
price increase activities and service fee execution
• We will benefit from our environmental fee increase to 6.0% from 4.2%
• New business pricing and maintaining price leadership is paramount
• Emphasis on disposal customer price quality and service charge capture
• The Profitable Growth initiative places emphasis on retention of current customer
base and targeting of sales efforts to identify and gain our fair share of growth
• Roll out of the Profitable Growth initiative to be completed mid-year
• Profitable Growth initiative leverages the local knowledge of operations, sales and price management
to identify growth opportunities
• Segmentation efforts underway in five areas – Manufacturing/Industrial, Healthcare,
Construction, Commercial Property and Public Sector
• Minimum pricing targets are being set for each of our Areas, Groups and the
Corporation
22
23. Management Incentive Programs
Annual Incentive Plan
• 2009 Annual Management Incentive Plan
– Rewards all employees on the same Company-wide financial measures
– Rewards for output and results, not input and effort
• 35% EBIT margin
• 35% EBITDA dollars
• 30% Individual Performance (goals set at individual level that link to overall Company
strategy)
• However, it is imperative that we maintain our focus on our pricing
programs in 2009. To ensure we do, we are setting minimum pricing
targets for each of our Areas, Groups and the Corporation. Overall
pricing targets must be met in order for eligible employees to receive the
financial performance portion of their 2009 annual bonuses
23
24. Consistency of Pricing Excellence
Pricing Excellence begins Same Store Price
Increases and Pricing
Roll-out of Price Excellence continues
Levers Begins
3.9% 3.9% 3.9%
4.0%
3.6%
3.3%3.4%3.3% 3.3% 3.2%
3.1%
2.9%
2.7%
2.7%
2.1%
2.1%2.1%
2.0%
0.0%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08
IRG From Yield on Base Business
Excludes impact of fuel surcharge, recycling commodity prices and mandated fees and taxes
24
26. 2009 Guidance
Free Cash Flow (a)
• ~$1.3 to $1.4 billion
• Capital expenditures ~$1.2 billion
• Capital allocation program Up to $1.3 billion
• $1.16 per share dividend payments ~$570 million
(BOD authorized 2009 capital allocation program of up to $1.3 billion in cash
available for dividends, stock repurchases, debt reduction and acquisitions)
(a) See slide 41 for the reconciliation of this non-GAAP financial measure to its corresponding GAAP financial
measure.
26
28. Growth Potential of Renewable
Energy from Waste
Through our Wheelabrator subsidiary, Waste Management is the
second largest player in the U.S. Waste-to-Energy market
• Wheelabrator owns or operates 16 WTE facilities
Strong margins due to level of disposal and energy prices and excellent plant operating
–
performance
• Several communities are starting to look at WTE as a new disposal and
energy generation alternative
Policies, public acceptance and desire to develop renewable energy alternatives are moving in a
–
positive direction
• Responded to 4 RFPs in the U.S. and pre-qualified for 6 in the United
Kingdom
Selected as preferred vendor to construct and operate a regional waste-to-energy facility in
–
Maryland
Tracking the development of others throughout North America and Europe
–
28
29. Growth Potential of Renewable
Energy from Waste
Waste Management is leading developer and operator of landfill
gas to energy projects
• Landfill gas is a natural byproduct of decomposing waste, providing
us with a renewable energy resource related to our core business
– Concept is readily accepted by host communities
• Landfill gas has been put to beneficial use at 110 WM landfills
– 8 projects brought on line during 2008 with plans to break-ground on 13 more in 2009
– Projects are accretive to earnings and operating margins
– Beginning to leverage our expertise to develop LFGE projects for third parties
• Project to convert landfill gas to approximately 13,000 gallons per
day of LNG expected to be operational this summer in California
29
31. 2008 Financial Overview
• Solid performance for the first three quarters
• Economic impact was felt in the fourth quarter
– Recycling commodity markets deteriorated rapidly
– Industrial collection and post collection volumes declined
• Residential and commercial volumes held in the range
of prior quarters
• Cash flow remained robust
31
32. Income before Taxes
$ in Millions
$2,000
$1,756
$1,703
Income before Taxes
$1,474
$1,500
$1,092
$1,000
2005 2006 2007 2008
32
33. Return on Invested Capital*
18.0%
16.8%
16.6%
15.2%
16.0%
ROIC
13.7%
14.0%
12.0%
Year
2005 2006 2007 2008
*See slides 38 and 39 for the calculation of ROIC.
33
35. Update on 2009 Financing Plan
• Completed issuance of $800mm senior notes in February 2009
Issuance split into two tranches
–
$350mm of bonds have a 6-year maturity and a coupon of 6.375%
–
$450mm of bonds have a 10-year maturity and a coupon of 7.375%
–
• Use of proceeds from senior notes
Will repay $500mm of 6.875% senior notes that mature in May 2009
–
Remaining proceeds for general corporate purposes, including repayment of all or a portion of
–
$300mm of outstanding borrowings on revolver
Note that we repaid $385mm of senior notes that matured in November 2008
–
Next senior note maturity is $600mm due in August 2010
–
• Expect to issue up to $150mm of industrial revenue bonds in 2009,
depending on market conditions, while repaying $80mm of maturities. We
also expect to remarket approximately $350mm of tax exempt fixed rate
put bonds in 2009
35
36. Maturities – Senior Notes
$600
$600 $400
$ Millions
$500
$200
$ Millions
$400
$0
29
32
26
28
20
20
20
20
$300 Maturity Date
$200
$100
$0
*
10
11
12
13
14
15
16
17
18
19
09
20
20
20
20
20
20
20
20
20
20
20
Maturity Date
* Includes $500mm of senior notes that mature in May 2009 and will be repaid with Feb 2009 note
issuance that matures in 2015 and 2019
36
38. Reconciliation of Certain Non-GAAP Measures
ROIC as Adjusted*
2005 2006 2007 2008
ROIC Numerator
Operating revenues $ 13,074 $ 13,363 $ 13,310 $ 13,388
Less: Operating costs and expenses (8,631) (8,587) (8,402) (8,466)
Selling, general and administrative expenses (1,276) (1,388) (1,432) (1,477)
Depreciation and amortization expenses (1,361) (1,334) (1,259) (1,238)
$ 1,806 $ 2,054 $ 2,217 $ 2,207
Less: Tax expense at 38.9% (note 1, pg 41) $ (701) $ (797) $ (860) $ (856)
$ 1,105 $ 1,257 $ 1,357 $ 1,351
NOPAT
ROIC Denominator
Current portion of long term debt 522 822 329 835
Long term debt, less portion 8,165 7,495 8,008 7,491
Stockholders' Equity 6,121 6,222 5,792 5,902
Less: Cash & Cash Equivalents (966) (798) (348) (480)
Goodwill (5,364) (5,292) (5,406) (5,462)
8,478 8,449 8,375 8,286
Invested Capital
Adjustment to Invested Capital for effect of tax audit
settlements on stockholders' equity (note 2, pg 41) (398) (158) (198) (224)
$ 8,080 $ 8,291 $ 8,177 $ 8,062
Adjusted Invested Capital
Adjusted ROIC 13.7% 15.2% 16.6% 16.8%
*We define ROIC as Net Operating Profit after Taxes divided by Invested Capital. See slide 39 for additional explanation
38
39. Reconciliation of Certain Non-GAAP Measures
ROIC as Adjusted Continued
• Management discloses the Company’s Return on Invested Capital because it believes that
ROIC is a measure of how effectively we allocate capital in our operations. ROIC also is
used as one of the measures for our executives’ long-term incentive awards because
profitable allocation of capital is critical to the long-term success of the Company. However,
ROIC should not be used in isolation or as an alternative to net income as an indicator of
performance or cash flows from operating activities as an indicator of liquidity.
• Note 1: The tax rate used is not the Company’s effective tax rate for the periods disclosed.
In calculating ROIC, the Company uses 38.8%, which is the rate required for the calculation
under the Company’s Long Term Incentive Plan for awards granted prior to 2009. The
38.8% rate represents an estimation of the combined statutory state and federal taxes
applicable to the Company’s income. The Company has used this rate for its calculations
because it believes it gives a better indication of the tax adjusted operating profit of the
Company than using the actual rate, which can be effected by tax credits and other items.
• Note 2: The Company has adjusted Invested Capital for the periods presented for the effect
that large tax audit settlements had on the Company’s stockholders’ equity for those
periods. These adjustments are the same adjustments made by the Management
Development and Compensation Committee of the Board of Directors to the calculations for
the purposes of the Company’s long-term incentive awards. These adjustments were
deemed appropriate because the effect of the audit settlements was not reflective of
operating performance.
39
40. Reconciliation of Certain Non-GAAP
Measures
Adjusted Operating Expenses as a Years Ended December 31,
Percent of Revenue 2008 2007
As reported:
Operating revenues $ 13,388 $ 13,310
Operating expenses $ 8,466 $ 8,402
Operating expenses as a percent of revenue 63.2% 63.1%
Adjustments to operating expenses:
Labor disputes $ (8) $ (35)
Pension withdrawal costs $ (39) $ -
Present value of remediation liabilities, int. rate change $ (33) $ -
As adjusted:
Operating revenues $ 13,388 $ 13,310
Operating expenses $ 8,386 $ 8,367
Adjusted operating expenses as a percent of revenue 62.6% 62.9%
2007 and 2008 adjusted to exclude the impacts of labor disruptions in Oakland, LA and Milwaukee; withdrawal from union
related pension plans in 2008; and discount rate adjustments to remediation accruals in 2008. ($ in Millions Un-audited)
40
41. Reconciliation of Certain Non-GAAP Measures
Full Year 2009 Free Cash Flow Reconciliation
Scenario 1 Scenario 2
Net cash provided by operating activities $ 2,310 $ 2,510
Capital expenditures (1,100) (1,200)
Proceeds from divestitures of businesses (net of
cash divested) and other sales of assets 90 90
Free cash flow $ 1,300 $ 1,400
($ in Millions Un-audited)
41
