10-KPeriod: FY2008

WASTE MANAGEMENT INC Annual Report, Year Ended Dec 31, 2008

Filed February 17, 2009For Securities:WM

Summary

Waste Management Inc. (WM) faced a challenging economic environment in 2008, marked by severe economic uncertainty, market volatility, and tightening credit conditions. Despite these headwinds, the company reported a slight increase in revenue to $13.388 billion, driven by internal revenue growth from pricing strategies (yield). However, income from operations saw a marginal decrease due to factors like volatile recycling commodity markets in Q4, higher fuel costs throughout most of the year, and non-recurring charges related to environmental remediation liabilities and labor matters. Looking ahead to 2009, WM announced a significant organizational streamlining initiative, consolidating its market areas and reducing employee positions, which is expected to yield substantial cost savings. The company remains focused on operational efficiency and generating strong free cash flow to manage its debt obligations and return value to shareholders. The company's performance was also impacted by a lawsuit against SAP AG regarding a revenue management system, with a potential impairment charge of $45-$55 million if the system is abandoned.

Financial Highlights

50 data points
Beta

Revenue

$13.39B

Net Income

$1.09B

8.1% Net Margin

EPS (Diluted)

$2.19

Total Assets

$20.23B

Cash & Equivalents

$480.00M

Free Cash Flow

$2.58B

Financial Statements
Beta
Revenue$13.39B
SG&A Expenses$1.48B
Operating Expenses$11.15B
Operating Income$2.23B
Interest Expense$472.00M
Net Income$1.09B
EPS (Basic)$2.21
EPS (Diluted)$2.19
Shares Outstanding (Basic)492.10M
Shares Outstanding (Diluted)495.40M

Key Highlights

  • 1Revenue increased slightly to $13.388 billion in 2008, driven by a 2.8% "yield" in base business due to pricing initiatives.
  • 2Net income decreased to $1.087 billion ($2.19 diluted EPS) in 2008 from $1.163 billion ($2.23 diluted EPS) in 2007.
  • 3Operating cash flow increased by 5.6% to $2.575 billion.
  • 4The company announced a restructuring plan in early 2009 to consolidate market areas, eliminate over 1,000 positions, and achieve annualized cost savings exceeding $100 million, with an expected charge of $40-$50 million.
  • 5Recycling commodity prices experienced a significant downturn in Q4 2008, negatively impacting revenue and earnings.
  • 6The company suspended share repurchases in July 2008 due to the proposed acquisition of Republic Services and the uncertain financial markets.
  • 7A lawsuit was filed against SAP AG for fraud and breach of contract related to a software implementation, with a potential impairment charge if the system is abandoned.

Frequently Asked Questions

The challenging economic environment in 2008, characterized by reduced consumer and business spending, negatively impacted waste volumes, which in turn affected revenues. Additionally, customers' financial difficulties increased the risk of delayed payments or defaults. While the company's services are generally considered essential, these economic factors pressured revenues and increased bad debt expenses.

Waste Management is implementing a significant organizational restructuring, consolidating 45 market areas into 25, which is expected to eliminate over 1,000 jobs and generate annualized cost savings exceeding $100 million. The company is also focused on 'operational excellence' and 'pricing excellence' to improve margins and manage costs effectively.

The sharp decline in recycling commodity prices, particularly in the fourth quarter of 2008, significantly impacted Waste Management's WMRA segment. This led to a substantial year-over-year decrease in revenue and negatively affected operating income and cash flows for the year. The company anticipates this downturn to continue impacting results in 2009.

As of December 31, 2008, Waste Management had total debt of $8.326 billion. The company had $297 million in unused and available credit capacity under its revolving credit facility. While the company expects to meet its liquidity needs through operating cash flows and existing credit facilities, it acknowledged the potential for difficulty in refinancing debt on acceptable terms given the state of the credit markets.