UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended June 30, 2011
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number 1-12154

Waste Management, Inc.

(Exact name of registrant as specified in its charter)

Delaware	73-1309529
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1001 Fannin
Suite 4000
Houston, Texas 77002
(Address of principal executive offices)

(713) 512-6200

(Registrant’s telephone number, including area code)

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 Regulation S-T 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 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 number of shares of Common Stock, $0.01 par value, of the registrant outstanding at July 20, 2011 was 472,054,373 (excluding treasury shares of 158,228,088).

TABLE OF CONTENTS

PART I.
	Item 1. Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EX-10.1
EX-10.2
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

PART I.

Item 1.   Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Millions, Except Share and Par Value Amounts)

	June 30,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	371		$	539
Accounts receivable, net of allowance for doubtful accounts of $24 and $26, respectively		1,609			1,510
Other receivables		104			146
Parts and supplies		137			130
Deferred income taxes		39			40
Other assets		114			117
Total current assets		2,374			2,482
Property and equipment, net of accumulated depreciation and amortization of $14,957 and $14,690, respectively		11,919			11,868
Goodwill		5,793			5,726
Other intangible assets, net		310			295
Other assets		1,187			1,105
Total assets	$	21,583		$	21,476
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	576		$	692
Accrued liabilities		1,056			1,100
Deferred revenues		465			460
Current portion of long-term debt		198			233
Total current liabilities		2,295			2,485
Long-term debt, less current portion		8,839			8,674
Deferred income taxes		1,704			1,662
Landfill and environmental remediation liabilities		1,436			1,402
Other liabilities		686			662
Total liabilities		14,960			14,885
Commitments and contingencies
Equity:
Waste Management, Inc. stockholders’ equity:
Common stock, $0.01 par value; 1,500,000,000 shares authorized; 630,282,461 shares issued		6			6
Additional paid-in capital		4,545			4,528
Retained earnings		6,499			6,400
Accumulated other comprehensive income		259			230
Treasury stock at cost, 157,950,900 and 155,235,711 shares, respectively		(5,018	)		(4,904	)
Total Waste Management, Inc. stockholders’ equity		6,291			6,260
Noncontrolling interests		332			331
Total equity		6,623			6,591
Total liabilities and equity	$	21,583		$	21,476

See notes to the Condensed Consolidated Financial Statements.

2

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)

	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
	2011			2010			2011			2010
Operating revenues	$	3,347		$	3,158		$	6,450		$	6,093
Costs and expenses:
Operating		2,140			1,996			4,135			3,877
Selling, general and administrative		382			345			764			696
Depreciation and amortization		319			309			618			600
Restructuring		—			(1	)		—			(1	)
(Income) expense from divestitures, asset impairments and unusual items		—			(77	)		—			(77	)
		2,841			2,572			5,517			5,095
Income from operations		506			586			933			998
Other income (expense):
Interest expense		(119	)		(116	)		(240	)		(228	)
Interest income		2			2			5			2
Equity in net losses of unconsolidated entities		(9	)		(8	)		(13	)		(8	)
Other, net		1			—			2			2
		(125	)		(122	)		(246	)		(232	)
Income before income taxes		381			464			687			766
Provision for income taxes		131			206			241			316
Consolidated net income		250			258			446			450
Less: Net income attributable to noncontrolling interests		13			12			23			22
Net income attributable to Waste Management, Inc.	$	237		$	246		$	423		$	428
Basic earnings per common share	$	0.50		$	0.51		$	0.89		$	0.89
Diluted earnings per common share	$	0.50		$	0.51		$	0.89		$	0.88
Cash dividends declared per common share	$	0.34		$	0.315		$	0.68		$	0.63

See notes to the Condensed Consolidated Financial Statements.

3

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

	Six Months
	Ended
	June 30,
	2011			2010
Cash flows from operating activities:
Consolidated net income	$	446		$	450
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		618			600
Deferred income tax provision		39			25
Interest accretion on landfill liabilities		41			40
Interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets		3			15
Provision for bad debts		15			19
Equity-based compensation expense		27			20
Net gain on disposal of assets		(8	)		(10	)
Excess tax benefits associated with equity-based transactions		(7	)		(1	)
Equity in net losses of unconsolidated entities, net of dividends		13			5
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Receivables		(115	)		(110	)
Other current assets		(18	)		(18	)
Other assets		31			8
Accounts payable and accrued liabilities		25			(98	)
Deferred revenues and other liabilities		(32	)		31
Net cash provided by (used in) operating activities		1,078			976
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(157	)		(237	)
Capital expenditures		(596	)		(475	)
Proceeds from divestitures of businesses (net of cash divested) and other sales of assets		13			27
Net receipts from restricted trust and escrow accounts		7			26
Investments in unconsolidated entities		(91	)		(161	)
Other		—			(3	)
Net cash used in investing activities		(824	)		(823	)
Cash flows from financing activities:
New borrowings		404			706
Debt repayments		(314	)		(213	)
Common stock repurchases		(168	)		(286	)
Cash dividends		(323	)		(305	)
Exercise of common stock options		35			13
Excess tax benefits associated with equity-based transactions		7			1
Distributions paid to noncontrolling interests		(22	)		(22	)
Other		(44	)		(17	)
Net cash used in financing activities		(425	)		(123	)
Effect of exchange rate changes on cash and cash equivalents		3			(1	)
Increase (decrease) in cash and cash equivalents		(168	)		29
Cash and cash equivalents at beginning of period		539			1,140
Cash and cash equivalents at end of period	$	371		$	1,169

See notes to the Condensed Consolidated Financial Statements.

4

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(In millions, except shares in thousands)
(Unaudited)

	Waste Management, Inc. Stockholders’ Equity
																Accumulated
																Other
											Additional					Comprehensive
				Comprehensive			Common Stock				Paid-In		Retained			Income			Treasury Stock						Noncontrolling
	Total			Income			Shares		Amounts		Capital		Earnings			(Loss)			Shares			Amounts			Interests
Balance, December 31, 2010	$	6,591						630,282	$	6	$	4,528	$	6,400		$	230			(155,236	)	$	(4,904	)	$	331
Comprehensive Income:
Consolidated net income		446		$	446			—		—		—		423			—			—			—			23
Other comprehensive income (loss), net of taxes:
Unrealized losses resulting from changes in fair value of derivative instruments, net of taxes of $8		(13	)		(13	)		—		—		—		—			(13	)		—			—			—
Realized losses on derivative instruments reclassified into earnings, net of taxes of $6		9			9			—		—		—		—			9			—			—			—
Unrealized losses on marketable securities, net of taxes of $1		(1	)		(1	)		—		—		—		—			(1	)		—			—			—
Foreign currency translation adjustments		36			36			—		—		—		—			36			—			—			—
Change in funded status of post-retirement benefit obligations, net of taxes of $1		(2	)		(2	)		—		—		—		—			(2	)		—			—			—
Other comprehensive income (loss)		29			29
Comprehensive income		475		$	475
Cash dividends declared		(323	)					—		—		—		(323	)		—			—			—			—
Equity-based compensation transactions, including dividend equivalents, net of taxes		78						—		—		17		(1	)		—			1,973			62			—
Common stock repurchases		(176	)					—		—		—		—			—			(4,694	)		(176	)		—
Distributions paid to noncontrolling interests		(22	)					—		—		—		—			—			—			—			(22	)
Other		—						—		—		—		—			—			6			—			—
Balance, June 30, 2011	$	6,623						630,282	$	6	$	4,545	$	6,499		$	259			(157,951	)	$	(5,018	)	$	332

See notes to the Condensed Consolidated Financial Statements.

5

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   Basis of Presentation

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. 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.

We manage and evaluate our principal operations through five Groups. Our four geographic operating Groups, which are 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. We also provide additional services that are not managed through our five Groups, which are presented in this report as “Other.” Additional information related to our segments can be found in Note 9.

The Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2011 and 2010 are unaudited. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in connection with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.

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. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Adoption of New Accounting Pronouncements

Multiple-Deliverable Revenue Arrangements — In October 2009, the Financial Accounting Standards Board (“FASB”) amended authoritative guidance associated with multiple-deliverable revenue arrangements. This amended guidance addresses the determination of when individual deliverables within an arrangement are required to 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 has been applied prospectively to arrangements entered into or materially modified after the date of adoption. The adoption of this guidance has not had a material impact on our consolidated financial statements. However, our adoption of this guidance may significantly impact our accounting and reporting for future revenue arrangements to the extent they are material.

6

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications

Certain reclassifications have been made to our prior period consolidated financial information in order to conform to the current year presentation.

2.   Landfill and Environmental Remediation Liabilities

Liabilities for landfill and environmental remediation costs are presented in the table below (in millions):

	June 30, 2011						December 31, 2010
			Environmental						Environmental
	Landfill		Remediation		Total		Landfill		Remediation		Total
Current (in accrued liabilities)	$	104	$	42	$	146	$	105	$	43	$	148
Long-term		1,203		233		1,436		1,161		241		1,402
	$	1,307	$	275	$	1,582	$	1,266	$	284	$	1,550

The changes to landfill and environmental remediation liabilities for the year ended December 31, 2010 and the six months ended June 30, 2011 are reflected in the table below (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
Obligations incurred and capitalized		24			—
Obligations settled		(31	)		(16	)
Interest accretion		41			3
Revisions in cost estimates and interest rate assumptions		4			4
Acquisitions, divestitures and other adjustments		3			—
June 30, 2011	$	1,307		$	275

At several of our landfills, we provide financial assurance by depositing cash into restricted trust funds or escrow accounts for purposes of settling final capping, closure, post-closure and environmental remediation obligations. Generally, these trust funds are established to comply with statutory requirements and operating agreements and we are the sole beneficiary of the restricted balances. However, certain of the funds have been established for the benefit of both the Company and the host community in which we operate.

The fair value of trust funds and escrow accounts for which we are the sole beneficiary was $120 million at June 30, 2011 and is included in long-term “Other assets” in our Condensed Consolidated Balance Sheet. Our investments and receivables related to the trusts that have been established for the benefit of both the Company and the host community in which we operate had an aggregate carrying value of $105 million at June 30, 2011 and are recorded in “Other receivables” and as long-term “Other assets” in our Condensed Consolidated Balance Sheet. See Note 12 for additional information related to these trusts.

7

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.   Debt

The following table summarizes the major components of debt at each balance sheet date (in millions) and provides the maturities and interest rate ranges of each major category as of June 30, 2011 and December 31, 2010:

	June 30,		December 31,
	2011		2010
Revolving credit facility	$	—	$	—
Letter of credit facilities		—		—
Canadian credit facility (weighted average effective interest rate of 2.3% at June 30, 2011 and 2.2% at December 31, 2010)		144		212
Senior notes and debentures, maturing through 2039, interest rates ranging from 4.60% to 7.75% (weighted average interest rate of 6.3% at June 30, 2011 and 6.5% at December 31, 2010)		5,710		5,452
Tax-exempt bonds maturing through 2039, fixed and variable interest rates ranging from 0.1% to 7.4% (weighted average interest rate of 3.1% at June 30, 2011 and December 31, 2010)		2,671		2,696
Tax-exempt project bonds, principal payable in periodic installments, maturing through 2029, fixed and variable interest rates ranging from 0.1% to 3.4% (weighted average interest rate of 1.3% at June 30, 2011 and 2.5% at December 31, 2010)		86		116
Capital leases and other, maturing through 2050, interest rates up to 12%		426		431
		9,037		8,907
Current portion of long-term debt		198		233
	$	8,839	$	8,674

Debt Classification

As of June 30, 2011, we had $321 million of debt maturing within the next twelve months, including U.S. $144 million under our Canadian credit facility. We have classified $123 million of these borrowings as long-term as of June 30, 2011 based on our intent and ability to refinance these borrowings on a long-term basis.

Net Debt Borrowings

In February 2011, we issued $400 million of 4.60% senior notes due March 2021. The net proceeds from the debt issuance were $396 million. We used a portion of the proceeds to repay $147 million of 7.65% senior notes that matured in March 2011. During the second quarter of 2011, we repaid approximately $77 million of advances outstanding under our Canadian credit facility with available cash.

Revolving Credit and Letter of Credit Facilities

As of June 30, 2011, we had an aggregate committed capacity of $2.5 billion for letters of credit under various credit facilities. In May 2011, we amended and restated our $2.0 billion revolving credit facility as a result of changes in market conditions, which significantly reduced the cost of the facility. We also extended the term through May 2016. Our revolving credit facility is our primary source of letter of credit capacity. Our remaining letter of credit capacity is provided under facilities with terms that extend from June 2013 to June 2015. As of June 30, 2011, we had an aggregate of $1.5 billion of letters of credit outstanding under various credit facilities. Approximately $1.1 billion of these letters of credit have been issued under our revolving credit facility. There were no borrowings under these credit facilities during the first half of 2011.

8

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.   Derivative Instruments and Hedging Activities

The following table summarizes the fair values of derivative instruments recorded in our Condensed Consolidated Balance Sheet (in millions):

		June 30,		December 31,
Derivatives Designated as Hedging Instruments	Balance Sheet Location	2011		2010
Interest rate contracts	Current other assets	$	—	$	1
Interest rate contracts	Long-term other assets		50		37
Total derivative assets		$	50	$	38
Interest rate contracts	Current accrued liabilities	$	—	$	11
Electricity commodity contracts	Current accrued liabilities		2		1
Interest rate contracts	Long-term accrued liabilities		22		13
Foreign exchange contracts	Long-term accrued liabilities		17		3
Total derivative liabilities		$	41	$	28

We have not offset fair value amounts recognized for our derivative instruments. For information related to the methods used to measure our derivative assets and liabilities at fair value, refer to Note 11.

Interest Rate Derivatives

Interest Rate Swaps

We use interest rate swaps to maintain a portion of our debt obligations at variable market interest rates. As of June 30, 2011, we had approximately $5.6 billion in fixed-rate senior notes outstanding compared with $5.4 billion as of December 31, 2010. As of June 30, 2011, the interest payments on $1 billion, or 18%, of these senior notes have been swapped to variable interest rates to protect the debt against changes in fair value due to changes in benchmark interest rates, compared with $500 million, or 9%, as of December 31, 2010. The increase in the notional amount of our interest rate swaps from December 31, 2010 to June 30, 2011 was due to the execution of $600 million of interest rate swaps in March 2011 partially offset by the scheduled maturity of $100 million of interest rate swaps in March 2011.

We have designated our interest rate swaps as fair value hedges of our fixed-rate senior notes. Fair value hedge accounting for interest rate swap contracts has increased the carrying value of debt instruments by $85 million as of June 30, 2011 and $79 million as of December 31, 2010.

Gains or losses on the derivatives as well as the offsetting losses or gains on the hedged items attributable to our interest rate swaps are recognized in current earnings. We include gains and losses on our interest rate swaps as adjustments to interest expense, which is the same financial statement line item where offsetting gains and losses on the related hedged items are recorded. The following table summarizes the fair value adjustments from interest rate swaps and the underlying hedged items on our results of operations (in millions):

Three Months		Statement of Operations	Gain (Loss) on		Gain (Loss) on
Ended June 30,		Classification	Swap		Fixed-Rate Debt
	2011	Interest expense	$	18	$	(18	)
	2010	Interest expense	$	13	$	(13	)

Six Months		Statement of Operations	Gain (Loss) on		Gain (Loss) on
Ended June 30,		Classification	Swap		Fixed-Rate Debt
	2011	Interest expense	$	12	$	(12	)
	2010	Interest expense	$	14	$	(14	)

9

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We also recognize the impacts of (i) net periodic settlements of current interest on our active interest rate swaps and (ii) the amortization of previously terminated interest rate swap agreements as adjustments to interest expense. The following table summarizes the impact of periodic settlements of active swap agreements and the impact of terminated swap agreements on our results of operations (in millions):

	Three Months				Six Months
	Ended June 30,				Ended June 30,
Decrease to Interest Expense Due to Hedge Accounting for Interest Rate Swaps	2011		2010		2011		2010
Periodic settlements of active swap agreements(a)	$	6	$	8	$	11	$	18
Terminated swap agreements		3		6		6		11
	$	9	$	14	$	17	$	29

(a) These amounts represent the net of our periodic variable-rate interest obligations and the swap counterparties’ fixed-rate interest obligations. Our variable-rate obligations are based on a spread from the three-month LIBOR.

Forward-Starting Interest Rate Swaps

In 2009, we entered into forward-starting interest rate swaps with a total notional value of $525 million to hedge the risk of changes in semi-annual interest payments due to fluctuations in the forward ten-year LIBOR swap rate for anticipated fixed-rate debt issuances in 2011, 2012 and 2014. We designated these forward-starting interest rate swaps as cash flow hedges.

During the first quarter of 2011, $150 million of these forward-starting interest rate swaps were terminated contemporaneously with the actual issuance of senior notes in February 2011, and we paid cash of $9 million to settle the liability related to these swap agreements. The ineffectiveness recognized upon termination of the hedges was immaterial and the related deferred loss continues to be recognized as a component of “Accumulated other comprehensive income.” The deferred loss is being amortized as an increase to interest expense over the ten-year life of the senior notes issued in February 2011 using the effective interest method. The incremental interest expense associated with these forward-starting interest rate swaps was immaterial during the three and six months ended June 30, 2011. As of June 30, 2011, the amount scheduled to be reclassified as an increase to interest expense over the next twelve months is immaterial.

The forward-starting interest rate swaps outstanding as of June 30, 2011 relate to anticipated debt issuances in November 2012 and March 2014. As of June 30, 2011, the fair value of these active interest rate derivatives was comprised of $22 million of long-term liabilities compared with $13 million of long-term liabilities as of December 31, 2010.

We recognized pre-tax and after-tax losses of $11 million and $7 million, respectively, to other comprehensive income for changes in the fair value of our forward-starting interest rate swaps during the three months ended June 30, 2011 and $7 million and $5 million, respectively, during the six months ended June 30, 2011. We recognized pre-tax and after-tax losses of $41 million and $25 million, respectively, to other comprehensive income for changes in the fair value of our forward-starting interest rate swaps during the three months ended June 30, 2010 and $46 million and $28 million, respectively, during the six months ended June 30, 2010. There was no significant ineffectiveness associated with these hedges during the three and six months ended June 30, 2011 or 2010.

Treasury Rate Locks

In prior years, we used Treasury rate locks to secure underlying interest rates in anticipation of senior note issuances. These cash flow hedging agreements resulted in deferred losses, net of taxes, of $14 million at June 30, 2011 and $16 million at December 31, 2010, which are included in “Accumulated other comprehensive income.” These deferred losses are reclassified as an increase to interest expense over the life of the related senior note

10

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

issuances, which extend through 2032. Pre-tax and after-tax amounts of $2 million and $1 million, respectively, for the three-month periods ended June 30, 2011 and June 30, 2010, and pre-tax and after-tax amounts of $4 million and $2 million, respectively, for the six-month periods ended June 30, 2011 and June 30, 2010, were reclassified out of accumulated other comprehensive income and into interest expense. As of June 30, 2011, $7 million (on a pre-tax basis) is scheduled to be reclassified as an increase to interest expense over the next twelve months.

Credit-Risk-Related Contingent Features

Certain of our interest rate derivative instruments contain provisions related to the Company’s credit rating. If the Company’s credit rating were to fall to specified levels below investment grade, the counterparties have the ability to terminate the derivative agreements, resulting in settlement of all affected transactions. As of June 30, 2011, we had not experienced any credit events that would trigger these provisions, nor did we have any derivative instruments with credit-risk-related contingent features that were in a net liability position.

Foreign Currency Derivatives

We use foreign currency exchange rate derivatives to hedge our exposure to fluctuations in exchange rates for anticipated intercompany cash transactions between Waste Management Holdings, Inc., a wholly-owned subsidiary (“WM Holdings”), and its Canadian subsidiaries. As of June 30, 2011, we had foreign currency forward contracts outstanding for all of the anticipated cash flows associated with a debt arrangement between these wholly-owned subsidiaries. The hedged cash flows include C$370 million of principal, which is scheduled for payment on October 31, 2013, and interest payments scheduled as follows: C$10 million on November 30, 2011, C$11 million on November 30, 2012 and C$10 million on October 31, 2013. We designated our foreign currency derivatives as cash flow hedges.

Gains or losses on the underlying hedged items attributable to foreign currency exchange risk are recognized in current earnings. We include gains and losses on our foreign currency forward contracts as adjustments to other income and expense, which is the same financial statement line item where offsetting gains and losses on the related hedged items are recorded. The following table summarizes the pre-tax impacts of our foreign currency cash flow derivatives on our comprehensive income and results of operations (in millions):

						Derivative Gain or
		Derivative Gain or				(Loss) Reclassified
		(Loss) Recognized				from AOCI into
Three Months		in OCI			Statement of Operations	Income
Ended June 30,		(Effective Portion)			Classification	(Effective Portion)
	2011	$	(3	)	Other income (expense)	$	(2	)
	2010	$	17		Other income (expense)	$	17

						Derivative Gain or
		Derivative Gain or				(Loss) Reclassified
		(Loss) Recognized				from AOCI into
Six Months		in OCI			Statement of Operations	Income
Ended June 30,		(Effective Portion)			Classification	(Effective Portion)
	2011	$	(14	)	Other income (expense)	$	(12	)
	2010	$	5		Other income (expense)	$	5

Amounts reported in other comprehensive income and accumulated other comprehensive income are reported net of tax. Adjustments to other comprehensive income for changes in the fair value of our foreign currency cash flow hedges resulted in the recognition of after-tax losses of $2 million and $8 million during the three and six months ended June 30, 2011, respectively, as compared with the recognition of after-tax gains of $10 million and $3 million during the three and six months ended June 30, 2010, respectively. After-tax adjustments for the reclassification of losses from accumulated other comprehensive income into income were $1 million and $7 million during the three and six months ended June 30, 2011, respectively. After-tax adjustments for the reclassification of gains from accumulated other comprehensive income into income were $11 million and

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$3 million during the three and six months ended June 30, 2010, respectively. There was no significant ineffectiveness associated with these hedges during the three and six months ended June 30, 2011 or 2010.

Electricity Commodity Derivatives

As a result of the expiration of certain long-term electricity contracts at our waste-to-energy facilities, 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. We hedged 672,360 megawatt hours, or approximately 26%, of our Wheelabrator Group’s full year 2010 merchant electricity sales and the swaps executed through June 30, 2011 are expected to hedge about 1.6 million megawatt hours, or 49%, of the Group’s full year 2011 merchant electricity sales. For the three-month periods ended June 30, 2011 and 2010, we hedged 49% and 45%, respectively, of our merchant electricity sales. For the six-month periods ended June 30, 2011 and 2010, we hedged 51% and 25%, respectively, of our merchant electricity sales. There was no significant ineffectiveness associated with these cash flow hedges and all financial statement impacts associated with these derivatives were immaterial for the three-month and six-month periods ended June 30, 2011 and 2010.

5.   Income Taxes

Our effective income tax rate for the three and six months ended June 30, 2011 was 34.5% and 35.1%, respectively, compared with 44.2% and 41.2% for the comparable prior year periods. We evaluate our effective income tax rate at each interim period and adjust it accordingly as facts and circumstances warrant. The differences between federal income taxes computed at the federal statutory rate and reported income taxes for the three and six months ended June 30, 2011 were primarily due to the favorable impact of federal tax credits offset by the unfavorable impact of state and local income taxes. The differences between federal income taxes computed at the federal statutory rate and reported income taxes for the three and six months ended June 30, 2010 were primarily due to an increase in our state deferred income taxes to reflect the impact of changes in the estimated income tax rate at which temporary differences would be realized and the unfavorable impact of state and local income taxes.

Investment in Refined Coal Facility — In January 2011, we acquired a noncontrolling interest in a limited liability company, which was established to invest in and manage a refined coal facility in North Dakota. The facility’s refinement processes qualify for federal tax credits that are expected to be realized through 2019 in accordance with Section 45 of the Internal Revenue Code. Our initial consideration for this investment consisted of a cash payment of $48 million.

We account for our investment in this entity using the equity method of accounting, recognizing our share of the entity’s results and other reductions in “Equity in net losses of unconsolidated entities,” within our Condensed Consolidated Statement of Operations. During both the three and six months ended June 30, 2011, we recognized $2 million of net losses resulting from our share of the entity’s operating losses. Our tax provision for the three and six months ended June 30, 2011 was reduced by $4 million and $7 million, respectively, primarily as a result of tax credits realized from this investment. See Note 12 for additional information related to this investment.

Investment in Federal Low-income Housing Tax Credits — In April 2010, we acquired a noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. The entity’s low-income housing investments qualify for federal tax credits that are expected to be realized through 2020 in accordance with Section 42 of the Internal Revenue Code.

We account for our investment in this entity using the equity method of accounting. We recognize our share of the entity’s results and reductions in the value of our investment in “Equity in net losses of unconsolidated entities,” within our Condensed Consolidated Statement of Operations. The value of our investment decreases as the tax credits are generated and utilized. During the three and six months ended June 30, 2011, we recognized $6 million and $12 million of losses for reductions in the value of our investment, $2 million and $4 million of interest expense, and a reduction in our tax provision of $11 million (including $7 million of tax credits) and $18 million (including

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$11 million of tax credits), respectively. During the three and six months ended June 30, 2010, we recognized $8 million of losses for reductions in the value of our investment, $1 million of interest expense and a reduction in our tax provision of $11 million (including $8 million of tax credits). See Note 12 for additional information related to this investment.

Recent Legislation — The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, signed into law on December 17, 2010, included an extension of the bonus depreciation allowance through the end of 2012 and increased 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 from September 8, 2010 through December 31, 2011. The acceleration of deductions on 2011 capital expenditures resulting from the bonus depreciation provision will have no impact on our effective tax rate. However, the ability to accelerate depreciation deductions is expected to decrease our 2011 cash taxes by approximately $190 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.

6.   Comprehensive Income

Comprehensive income was as follows (in millions):

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Consolidated net income	$	250		$	258		$	446		$	450
Other comprehensive income (loss), net of taxes:
Unrealized losses resulting from changes in fair value of derivative instruments, net of taxes		(8	)		(22	)		(13	)		(33	)
Realized (gains) losses on derivative instruments reclassified into earnings, net of taxes		1			(9	)		9			—
Unrealized gains (losses) on marketable securities, net of taxes		1			(1	)		(1	)		—
Foreign currency translation adjustments		8			(37	)		36			(10	)
Change in funded status of post-retirement benefit obligations, net of taxes		—			(1	)		(2	)		(1	)
Other comprehensive income (loss)		2			(70	)		29			(44	)
Comprehensive income		252			188			475			406
Comprehensive income attributable to noncontrolling interests		(13	)		(12	)		(23	)		(22	)
Comprehensive income attributable to Waste Management, Inc.	$	239		$	176		$	452		$	384

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The components of accumulated other comprehensive income, which is included as a component of Waste Management, Inc. stockholders’ equity, were as follows (in millions):

	June 30,			December 31,
	2011			2010
Accumulated unrealized loss on derivative instruments, net of taxes	$	(37	)	$	(33	)
Accumulated unrealized gain on marketable securities, net of taxes		4			5
Foreign currency translation adjustments		297			261
Funded status of post-retirement benefit obligations, net of taxes		(5	)		(3	)
	$	259		$	230

7.   Earnings Per Share

Basic and diluted earnings per share were computed using the following common share data (shares in millions):

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Number of common shares outstanding at end of period		472.3		478.9		472.3		478.9
Effect of using weighted average common shares outstanding		1.9		3.2		2.6		2.6
Weighted average basic common shares outstanding		474.2		482.1		474.9		481.5
Dilutive effect of equity-based compensation awards and other contingently issuable shares		1.8		3.7		2.1		3.1
Weighted average diluted common shares outstanding		476.0		485.8		477.0		484.6
Potentially issuable shares		17.3		15.7		17.3		15.7
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding		0.1		0.2		0.1		3.7

8.   Commitments and Contingencies

Financial Instruments — We have obtained letters of credit, performance bonds and insurance policies and have established trust funds and issued financial guarantees to support tax-exempt bonds, contracts, performance of landfill final capping, closure and post-closure requirements, environmental remediation, and other obligations. Letters of credit generally are supported by our revolving credit facility and other credit facilities established for that purpose. We obtain surety bonds and insurance policies from an entity in which we have a noncontrolling financial interest. We also obtain insurance from a wholly-owned insurance company, the sole business of which is to issue policies for us. In those instances where our use of financial assurance from entities we own or have financial interests in is not allowed, we have available alternative financial assurance mechanisms.

Management does not expect that any claims against or draws on these instruments would have a material adverse effect on our consolidated financial statements. We have not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for our current operations. In an ongoing effort to mitigate risks of future cost increases and reductions in available capacity, we continue to evaluate various options to access cost-effective sources of financial assurance.

Insurance — We carry insurance coverage for protection of our assets and operations from certain risks including automobile liability, general 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

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policy. Our exposure, however, could increase if our insurers are unable to meet their commitments on a timely basis.

We have retained a significant portion of the risks related to our automobile, general liability and workers’ compensation insurance programs. For our self-insured retentions, the exposure for unpaid claims and associated expenses, including incurred but not reported losses, is 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. We do not expect any known casualty, property, environmental or other contingency to have a material impact on our financial condition, results of operations or cash flows.

Guarantees — In the ordinary course of our business, WM and WM Holdings enter into guarantee agreements associated with their subsidiaries’ operations. Additionally, WM and WM Holdings have each guaranteed all of the senior debt of the other entity. No additional liabilities have been recorded for these intercompany guarantees because all of the underlying obligations are reflected in our Condensed Consolidated Balance Sheets.

We also have guaranteed the obligations of, and provided indemnification to, third parties in the ordinary course of business. Guarantee agreements outstanding as of June 30, 2011 include (i) guarantees of unconsolidated entities’ financial obligations maturing through 2020 for maximum future payments of $11 million; and (ii) agreements guaranteeing certain market value losses for approximately 900 homeowners’ properties adjacent to or near 19 of our landfills. Our indemnification obligations generally arise in divestitures and provide that we will be responsible for liabilities associated with our operations for events that occurred prior to the sale of the operations. Additionally, under certain of our acquisition agreements, we have provided for additional consideration to be paid to the sellers if established financial targets are achieved post-closing and we have recognized liabilities for these contingent obligations based on an estimate of the fair value of these contingencies at the time of acquisition. Contingent obligations related to indemnification arising from our divestitures and contingent consideration provided for by our acquisitions are not expected to be material to our financial position, results of operations or cash flows.

Environmental Matters — A significant portion of our operating costs and capital expenditures could be characterized as costs of environmental protection, as 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. In addition to remediation activity required by state or local authorities, such liabilities include potentially responsible party, or PRP, investigations. The costs associated with these liabilities can include settlements, certain legal and consultant fees, as well as incremental internal and external costs directly associated with site investigation and clean-up.

Estimating our degree of responsibility for remediation is inherently difficult. We recognize and accrue for an estimated remediation liability when we determine that such liability is both probable and reasonably estimable. Determining the method and ultimate cost of remediation requires that a number of assumptions be made. There can sometimes be a range of reasonable estimates of the costs associated with the investigation of the extent of environmental impact and identification of likely site-remediation alternatives. In these cases, we use the amount within the range that constitutes our best estimate. If no amount within a range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of such ranges, our aggregate potential liability would be approximately $150 million higher than the $275 million recorded in the Condensed Consolidated Financial Statements as of June 30, 2011. Our ongoing review of our remediation liabilities, in light of relevant internal and external facts and circumstances, could result in revisions to our accruals that could cause upward or downward adjustments to income from operations. These adjustments could be material in any given period.

As of June 30, 2011, we had been notified that we are a PRP in connection with 79 locations listed on the EPA’s National Priorities List, or NPL. Of the 79 sites at which claims have been made against us, 17 are sites we own.

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Each of the NPL sites we own was initially developed by others as a landfill disposal facility. At each of these facilities, we are working in conjunction with the government to characterize or remediate identified site problems, and we have either agreed with other legally liable parties on an arrangement for sharing the costs of remediation or are working toward a cost-sharing agreement. We generally expect to receive any amounts due from other participating parties at or near the time that we make the remedial expenditures. The other 62 NPL sites, which we do not own, are at various procedural stages under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, known as CERCLA or Superfund.

The majority of these proceedings involving NPL sites that we do not own are based on allegations that certain of our subsidiaries (or their predecessors) transported hazardous substances to the sites, often prior to our acquisition of these subsidiaries. CERCLA generally provides for liability for those parties owning, operating, transporting to or disposing at the sites. Proceedings arising under Superfund typically involve numerous waste generators and other waste transportation and disposal companies and seek to allocate or recover costs associated with site investigation and remediation, which costs could be substantial and could have a material adverse effect on our consolidated financial statements. At some of the sites at which we have been identified as a PRP, our liability is well defined as a consequence of a governmental decision and an agreement among liable parties as to the share each will pay for implementing that remedy. At other sites, where no remedy has been selected or the liable parties have been unable to agree on an appropriate allocation, our future costs are uncertain.

Litigation — In April 2002, certain former participants in the ERISA plans of WM Holdings filed a lawsuit in the U.S. District Court for the District of Columbia in a case entitled William S. Harris, et al. v. James E. Koenig, et al. The lawsuit attempts to increase the recovery of a class of ERISA plan participants on behalf of the plan based on allegations related to both the events alleged in, and the settlements relating to, the securities class action against WM Holdings that was settled in 1998, the litigation against WM in Texas that was settled in 2002, as well as the decision to offer WM common stock as an investment option within the plan beginning in 1990, despite alleged knowledge by at least two members of the investment committee of financial misstatement by WM during the relevant time period.

During the second quarter of 2010, the Court dismissed certain claims against individual defendants, including all claims against each of the current members of our Board of Directors. Recently, plaintiffs dismissed all claims related to the settlement of the securities class action against WM that was settled in 2002, and the court certified a limited class of participants who may bring claims on behalf of the plan, but not individually. After initially asserting broader claims as to the plan, the plaintiffs now purport to file their complaint on behalf of plan participants who invested in WM common stock during a time frame ended February 24, 1998. The lawsuit now names as defendants WM Holdings; the members of WM Holdings’ Board of Directors prior to July 1998; the administrative and investments committees of the plan; and State Street Bank & Trust, the trustee and investment manager of the WM common stock fund available within the plan. Mr. Simpson, our Chief Financial Officer, is a named defendant in this action by virtue of his membership on the plan investment committee. The outcome of this lawsuit cannot be predicted with certainty, and these matters could impact the plan’s net assets available for benefits. The plan and other defendants intend to defend themselves vigorously in this litigation.

Two separate wage and hour lawsuits were commenced in October 2006 and March 2007 that are pending against certain of our subsidiaries in California, each seeking class certification. The actions were coordinated to proceed in San Diego County Superior Court. Both lawsuits make the same general allegations that our subsidiaries failed to comply with certain California wage and hour laws, including allegedly failing to provide meal and rest periods and failing to properly pay hourly and overtime wages. We have executed a settlement agreement in connection with this matter. Following a hearing on July 15, 2011, the Court executed an order approving the class action settlement and judgement. We anticipate all the details with respect to the settlement will be resolved and finally approved this fall.

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Additionally, in July 2008, we were named as a defendant in a purported class action in the Circuit Court of Bullock County, Alabama, which was subsequently removed to the United States District Court for the Northern District of Alabama. This suit pertains to our fuel and environmental charge in our customer service agreements and generally alleges that such charges were not properly disclosed, were unfair, and were contrary to contract. We filed a motion to dismiss that was partially granted during the third quarter of 2010, resulting in dismissal of the plaintiffs’ RICO and national class action claims. We deny all of the claims asserted in this action and intend to continue to oppose class certification and will vigorously defend these matters. Given the inherent uncertainties of litigation, the ultimate outcome of these cases cannot be predicted at this time, nor can possible damages, if any, be reasonably estimated.

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. In May 2008, Mnoian Management, Inc. filed suit in Los Angeles County Superior Court seeking remediation and increased compaction of a site we had previously leased for landfill purposes. The parties are participating in arbitration and have exchanged plans to remediate the site’s compaction fill. The Company believes it has valid defenses and will continue to vigorously defend these claims.

From time to time, we also are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of having owned, operated or transported waste to a disposal facility that is alleged to have contaminated the environment or, in certain cases, on the basis of having conducted environmental remediation activities at sites. Some of the lawsuits may seek to have us pay the costs of monitoring of allegedly affected sites and health care examinations of allegedly affected persons for a substantial period of time even where no actual damage is proven. While we believe we have meritorious defenses to these lawsuits, the ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the individual plaintiffs’ circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other factors.

As a large company with operations across the United States and Canada, we are subject to various proceedings, lawsuits, disputes and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against us include commercial, customer, and employment-related claims, including, as noted above, purported class action lawsuits related to our customer service agreements and purported class actions involving federal and state wage and hour and other laws. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. These actions are in various procedural stages, and some are covered in part by insurance. We currently do not believe that any such actions will ultimately have a material adverse impact on our consolidated financial statements.

WM’s charter and bylaws require indemnification of its officers and directors if statutory standards of conduct have been met and allow the advancement of expenses to these individuals upon receipt of an undertaking by the individuals to repay all expenses if it is ultimately determined that they did not meet the required standards of conduct. Additionally, WM has entered into separate indemnification agreements with each of the members of its Board of Directors as well as its President and Chief Executive Officer, and its Chief Financial Officer. The Company may incur substantial expenses in connection with the fulfillment of its advancement of costs and indemnification obligations in connection with current actions involving former officers of the Company or its subsidiaries or other actions or proceedings that may be brought against its former or current officers, directors and employees.

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Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings, or such proceedings are known to be contemplated, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $100,000. The following matters pending as of June 30, 2011 are disclosed in accordance with that requirement:

On April 4, 2006, the EPA issued a Notice of Violation (“NOV”) to Waste Management of Hawaii, Inc., an indirect wholly-owned subsidiary of WM, and to the City and County of Honolulu for alleged violations of the federal Clean Air Act, based on alleged failure to submit certain reports and design plans required by the EPA, and the failure to begin and timely complete the installation of a gas collection and control system (“GCCS”) for the Waimanalo Gulch Sanitary Landfill on Oahu. The EPA has also indicated that it will seek penalties and injunctive relief as part of the NOV enforcement for elevated landfill temperatures that were recorded after installation of the GCCS. The parties have been in confidential settlement negotiations. Pursuant to an indemnity agreement, any penalty assessed will be paid by the Company, and not by the City and County of Honolulu.

On February 25, 2011, the EPA issued an NOV to Chemical Waste Management, Inc.’s Kettleman Hills facility for alleged violations of the Resource Conservation and Recovery Act. The EPA has indicated it will seek civil penalties for the violations alleged, which relate primarily to management of landfill leachate, laboratory protocols, and the management and disposal of certain hazardous waste.

On April 11, 2011, Waste Management LampTracker, Inc.’s Kaiser, Missouri facility was notified that the EPA will be filing an administrative complaint and assessing civil penalties for alleged Resource Conservation and Recovery Act violations relating to container and facility management and the handling of certain waste.

Regarding a matter previously reported, three Wheelabrator Group subsidiaries have entered into a settlement with the Commonwealth of Massachusetts, resolving allegations of violations at Wheelabrator Group facilities in Saugus, North Andover and Millbury, Massachusetts. A consent judgment finalizing the settlement was approved by the Commonwealth of Massachusetts Superior Court on May 2, 2011. The settlement required the following payments, which were made as of June 30, 2011: $4.5 million for creation of a fund to be distributed to municipal customers of the three facilities by the Massachusetts Office of the Attorney General; $2 million for civil penalties arising from alleged violations of regulations and permit conditions; and $500,000 as a donation to the Massachusetts Natural Resources Damages Trust. In addition, the Wheelabrator Group subsidiaries will fund $500,000 in supplemental environmental projects.

Multiemployer, Defined Benefit Pension Plans — About 20% of our workforce is covered by collective bargaining agreements with various union locals across the United States and Canada. As a result of some of these agreements, certain of our subsidiaries are participating employers in a number of trustee-managed multiemployer, defined benefit pension plans for the affected employees. One of the most significant multiemployer pension plans in which we participate is the Central States Southeast and Southwest Areas Pension Plan (“Central States Pension Plan”), which has reported that it adopted a rehabilitation plan as a result of its actuarial certification for the plan year beginning January 1, 2008. The Central States Pension Plan is in “critical status,” as defined by the Pension Protection Act of 2006.

In connection with our ongoing renegotiation of various collective bargaining agreements, we may discuss and negotiate for the complete or partial withdrawal from one or more of these pension plans. A complete or partial withdrawal from a multiemployer pension plan may also occur if employees covered by a collective bargaining agreement vote to decertify a union from continuing to represent them. We recognized charges to “Operating” expenses of $28 million in the first quarter of 2010 associated with the withdrawal of three bargaining units from the Central States Pension Plan in connection with our negotiations of these unit’s agreements. We are still negotiating and litigating final resolutions of our withdrawal liability for this withdrawal and previous withdrawals, which could be materially higher than the charges we have recognized. We do not believe that our withdrawals from the

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multiemployer plans, individually or in the aggregate, will have a material adverse effect on our financial condition or liquidity. However, depending on the number of employees withdrawn in any future period and the financial condition of the multiemployer plans at the time of withdrawal, such withdrawals could materially affect our results of operations in the period of the withdrawal.

Tax Matters — We are currently in the examination phase of IRS audits for the tax years 2010 and 2011 and expect these audits to be completed within the next six and 18 months, respectively. We participate in the IRS’s Compliance Assurance Program, which means we work with the IRS throughout the year in order to resolve any material issues prior to the filing of our year-end tax return. We are also currently undergoing audits by various state and local jurisdictions that date back to 2000. In the third quarter of 2010, we finalized audits in Canada through the 2005 tax year and are not currently under audit for any subsequent tax years. To provide for certain potential tax exposures, we maintain a liability for unrecognized tax benefits, the balance of which management believes is adequate. Results of audit assessments by taxing authorities are not currently expected to have a material adverse impact on our results of operations or cash flows.

9.   Segment and Related Information

We currently manage and evaluate our operations primarily through our Eastern, Midwest, Southern, Western and Wheelabrator Groups. These five Groups are presented below as our reportable segments. Our four geographic operating 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. We serve residential, commercial, industrial, and municipal customers throughout North America. The operations not managed through our five operating Groups are presented herein as “Other.”

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Summarized financial information concerning our reportable segments for the three and six months ended June 30 is shown in the following table (in millions):

	Gross		Intercompany			Net
	Operating		Operating			Operating		Income from
	Revenues		Revenues			Revenues		Operations
Three Months Ended:
June 30, 2011
Eastern	$	800	$	(136	)	$	664	$	141
Midwest		828		(126	)		702		156
Southern		862		(105	)		757		193
Western		825		(114	)		711		142
Wheelabrator		226		(30	)		196		42
Other		330		(13	)		317		(21	)
		3,871		(524	)		3,347		653
Corporate and Other		—		—			—		(147	)
Total	$	3,871	$	(524	)	$	3,347	$	506
June 30, 2010
Eastern	$	774	$	(140	)	$	634	$	143
Midwest		780		(119	)		661		141
Southern		876		(104	)		772		206
Western		799		(112	)		687		141
Wheelabrator		217		(29	)		188		47
Other		225		(9	)		216		(26	)
		3,671		(513	)		3,158		652
Corporate and Other		—		—			—		(66	)
Total	$	3,671	$	(513	)	$	3,158	$	586
Six Months Ended:
June 30, 2011
Eastern	$	1,504	$	(248	)	$	1,256	$	261
Midwest		1,556		(232	)		1,324		285
Southern		1,700		(203	)		1,497		385
Western		1,615		(222	)		1,393		282
Wheelabrator		436		(61	)		375		55
Other		623		(18	)		605		(35	)
		7,434		(984	)		6,450		1,233
Corporate and Other		—		—			—		(300	)
Total	$	7,434	$	(984	)	$	6,450	$	933
June 30, 2010
Eastern	$	1,459	$	(253	)	$	1,206	$	252
Midwest		1,474		(217	)		1,257		223
Southern		1,699		(201	)		1,498		406
Western		1,563		(215	)		1,348		270
Wheelabrator		423		(60	)		363		83
Other		440		(19	)		421		(55	)
		7,058		(965	)		6,093		1,179
Corporate and Other		—		—			—		(181	)
Total	$	7,058	$	(965	)	$	6,093	$	998

20

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fluctuations in our operating results may be caused by many factors, including period-to-period changes in the relative contribution of revenue by each line of business and operating segment and by general economic conditions. In addition, our revenues and income from operations typically reflect seasonal patterns. 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. Historically, the volumes of industrial and residential waste in certain regions in which we operate have tended 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 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.

From time to time, the operating results of our reportable segments are significantly affected by unusual or infrequent transactions or events. During the first quarter of 2010, our Midwest Group recognized a $28 million charge as a result of bargaining unit employees in Michigan and Ohio agreeing to our proposal to withdraw them from an underfunded multiemployer pension plan. Refer to Note 8 for additional information related to our participation in multiemployer pension plans.

10.   (Income) Expense from Divestitures, Asset Impairments and Unusual Items

We filed a lawsuit in March 2008 related to the revenue management software implementation that was suspended in 2007 and abandoned in 2009. Accordingly, in 2009, we recognized a non-cash charge of $51 million for the abandonment of the licensed software. In April 2010, we settled the lawsuit and received a one-time cash payment. The settlement increased our “Income from operations” for the three and six months ended June 30, 2010 by $77 million.

21

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.   Fair Value Measurements

Assets and Liabilities Accounted for at Fair Value

Our assets and liabilities that are measured at fair value on a recurring basis include the following (in millions):

			Fair Value Measurements at
			June 30, 2011 Using
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	326	$	326	$	—	$	—
Available-for-sale securities		142		142		—		—
Interest rate derivatives		50		—		50		—
Total assets	$	518	$	468	$	50	$	—
Liabilities:
Electricity commodity derivatives	$	2	$	—	$	2	$	—
Interest rate derivatives		22		—		22		—
Foreign currency derivatives		17		—		17		—
Total liabilities	$	41	$	—	$	41	$	—

			Fair Value Measurements at
			December 31, 2010 Using
			Quoted		Significant
			Prices in		Other		Significant
			Active		Observable		Unobservable
			Markets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents	$	468	$	468	$	—	$	—
Available-for-sale securities		148		148		—		—
Interest rate derivatives		38		—		38		—
Total assets	$	654	$	616	$	38	$	—
Liabilities:
Electricity commodity derivatives	$	1	$	—	$	1	$	—
Interest rate derivatives		24		—		24		—
Foreign currency derivatives		3		—		3		—
Total liabilities	$	28	$	—	$	28	$	—

Fair Value of Debt

At June 30, 2011, the carrying value of our debt was approximately $9.0 billion compared with $8.9 billion at December 31, 2010. The carrying value of our debt includes adjustments for both the unamortized fair value adjustments related to terminated hedge arrangements and fair value adjustments of debt instruments that are currently hedged.

The estimated fair value of our debt was approximately $9.6 billion at June 30, 2011 and approximately $9.2 billion at December 31, 2010. The estimated fair value of our senior notes is based on quoted market prices. The carrying value of remarketable debt approximates fair value due to the short-term nature of the interest rates.

22

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of our other debt is estimated using discounted cash flow analysis, based on rates we would currently pay for similar types of instruments.

Although we have determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values. The fair value estimates are based on information available as of June 30, 2011 and December 31, 2010. These amounts have not been revalued since those dates, and current estimates of fair value could differ significantly from the amounts presented.

12.   Variable Interest Entities

Following is a description of our financial interests in variable interest entities that we consider significant, including (i) those for which we have determined that we are the primary beneficiary of the entity and, therefore, have consolidated the entities into our financial statements; and (ii) those that represent a significant interest in an unconsolidated entity.

Consolidated Variable Interest Entities

Waste-to-Energy LLCs — In June 2000, two limited liability companies were established to purchase interests in existing leveraged lease financings at three waste-to-energy facilities that we lease, operate and maintain. We own a 0.5% interest in one of the LLCs (“LLC I”) and a 0.25% interest in the second LLC (“LLC II”). John Hancock Life Insurance Company owns 99.5% of LLC I and 99.75% of LLC II is owned by LLC I and the CIT Group. In 2000, Hancock and CIT made an initial investment of $167 million in the LLCs, which was used to purchase the three waste-to-energy facilities and assume the seller’s indebtedness. Under the LLC agreements, the LLCs shall be dissolved upon the occurrence of any of the following events: (i) a written decision of all members of the LLCs; (ii) December 31, 2063; (iii) a court’s dissolution of the LLCs; or (iv) the LLCs ceasing to own any interest in the waste-to-energy facilities.

Income, losses and cash flows of the LLCs are allocated to the members based on their initial capital account balances until Hancock and CIT achieve targeted returns; thereafter, we will receive 80% of the earnings of each of the LLCs and Hancock and CIT will be allocated the remaining 20% proportionate to their respective ownership interests. All capital allocations made through June 30, 2011 have been based on initial capital account balances as the target returns have not yet been achieved.

Our obligations associated with our interests in the LLCs are primarily related to the lease of the facilities. In addition to our minimum lease payment obligations, we are required to make cash payments to the LLCs for differences between fair market rents and our minimum lease payments. These payments are subject to adjustment based on factors that include the fair market value of rents for the facilities and lease payments made through the re-measurement dates. In addition, we may also be required under certain circumstances to make capital contributions to the LLCs based on differences between the fair market value of the facilities and defined termination values as provided for in the underlying lease agreements, although we believe the likelihood of the occurrence of these circumstances is remote.

We have determined that we are the primary beneficiary of the LLCs and consolidate these entities in our Consolidated Financial Statements because (i) all of the equity owners of the LLCs are considered related parties for purposes of applying this accounting guidance; (ii) the equity owners share power over the significant activities of the LLCs; and (iii) we are the entity within the related party group whose activities are most closely associated with the LLCs.

As of June 30, 2011, our Condensed Consolidated Balance Sheet includes $313 million of net property and equipment associated with the LLCs’ waste-to-energy facilities and $243 million in noncontrolling interests

23

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

associated with Hancock’s and CIT’s interests in the LLCs. As of June 30, 2011, all debt obligations of the LLCs have been paid in full and, therefore, the LLCs have no liabilities. We recognized reductions in earnings of $12 million and $25 million for the three and six months ended June 30, 2011 and 2010, respectively, for Hancock’s and CIT’s noncontrolling interests in the LLCs’ earnings. The LLCs’ earnings relate to the rental income generated from leasing the facilities to our subsidiaries, reduced by depreciation expense. The LLCs’ rental income is eliminated in WM’s consolidation.

Significant Unconsolidated Variable Interest Entities

Investment in Refined Coal Facility — In January 2011, we acquired a noncontrolling interest in a limited liability company, which was established to invest in and manage a refined coal facility. Along with the other equity investor, we support the operations of the entity in exchange for a pro-rata share of the tax credits it generates. Our initial consideration for this investment consisted of a cash payment of $48 million. At June 30, 2011, our investment balance was $43 million, representing our current maximum pre-tax exposure to loss. Under the terms and conditions of the transaction, we do not believe that we have any material exposure to loss. Future contributions will commence once certain levels of tax credits have been generated and will continue through the expiration of the tax credits under Section 45 of the Internal Revenue Code, which occurs at the end of 2019. We are only obligated to make future contributions to the extent tax credits are generated. We determined that we are not the primary beneficiary of this entity as we do not have the power to individually direct the entity’s activities. Accordingly, we account for this investment under the equity method of accounting and do not consolidate the entity. Additional information related to this investment is discussed in Note 5.

Investment in Federal Low-income Housing Tax Credits — In April 2010, we acquired a noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. We support the operations of the entity in exchange for a pro-rata share of the tax credits it generates. Our target return on the investment is guaranteed and, therefore, we do not believe that we have any material exposure to loss. Our consideration for this investment totaled $221 million, which was comprised of a $215 million note payable and an initial cash payment of $6 million. At June 30, 2011, our investment balance was $190 million and our debt balance was $187 million. We determined that we are not the primary beneficiary of this entity as we do not have the power to individually direct the entity’s activities. Accordingly, we account for this investment under the equity method of accounting and do not consolidate the entity. Additional information related to this investment is discussed in Note 5.

Trusts for Final Capping, Closure, Post-Closure or Environmental Remediation Obligations — We have significant financial interests in trust funds that were created to settle certain of our final capping, closure, post-closure or environmental remediation obligations. We have determined that we are not the primary beneficiary of certain of these trust funds because power over the trusts’ significant activities is shared.

Our interests in these variable interest entities are accounted for as equity investments in unconsolidated entities and receivables. These amounts are recorded in “Other receivables” and as long-term “Other assets” in our Condensed Consolidated Balance Sheet. Our investments and receivables related to the trusts had an aggregate carrying value of $105 million as of June 30, 2011. We reflect our interests in the unrealized gains and losses on marketable securities held by these trusts as a component of “Accumulated other comprehensive income.”

As the party with primary responsibility to fund the related final capping, closure, post-closure or environmental remediation activities, we are exposed to risk of loss as a result of potential changes in the fair value of the assets of the trust. The fair value of trust assets can fluctuate due to (i) changes in the market value of the investments held by the trusts and (ii) credit risk associated with trust receivables. Although we are exposed to changes in the fair value of the trust assets, we currently expect the trust funds to continue to meet the statutory requirements for which they were established.

24

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13.   Condensed Consolidating Financial Statements

WM Holdings has fully and unconditionally guaranteed all of WM’s senior indebtedness. WM has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WM’s other subsidiaries have guaranteed any of WM’s or WM Holdings’ debt. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information (in millions):

CONDENSED CONSOLIDATING BALANCE SHEETS

June 30, 2011

(Unaudited)

			WM		Non-Guarantor
	WM		Holdings		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	325	$	—	$	46	$	—		$	371
Other current assets		6		—		1,997		—			2,003
		331		—		2,043		—			2,374
Property and equipment, net		—		—		11,919		—			11,919
Investments in and advances to affiliates		11,310		14,261		3,135		(28,706	)		—
Other assets		114		12		7,164		—			7,290
Total assets	$	11,755	$	14,273	$	24,261	$	(28,706	)	$	21,583
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	35	$	—	$	163	$	—		$	198
Accounts payable and other current liabilities		84		13		2,000		—			2,097
		119		13		2,163		—			2,295
Long-term debt, less current portion		5,323		449		3,067		—			8,839
Other liabilities		22		—		3,804		—			3,826
Total liabilities		5,464		462		9,034		—			14,960
Equity:
Stockholders’ equity		6,291		13,811		14,895		(28,706	)		6,291
Noncontrolling interests		—		—		332		—			332
		6,291		13,811		15,227		(28,706	)		6,623
Total liabilities and equity	$	11,755	$	14,273	$	24,261	$	(28.706	)	$	21,583

25

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS — (Continued)

December 31, 2010

			WM		Non-Guarantor
	WM		Holdings		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	465	$	—	$	74	$	—		$	539
Other current assets		4		1		1,938		—			1,943
		469		1		2,012		—			2,482
Property and equipment, net		—		—		11,868		—			11,868
Investments in and advances to affiliates		10,757		13,885		2,970		(27,612	)		—
Other assets		91		12		7,023		—			7,126
Total assets	$	11,317	$	13,898	$	23,873	$	(27,612	)	$	21,476
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	1	$	232	$	—		$	233
Accounts payable and other current liabilities		93		17		2,142		—			2,252
		93		18		2,374		—			2,485
Long-term debt, less current portion		4,951		596		3,127		—			8,674
Other liabilities		13		—		3,713		—			3,726
Total liabilities		5,057		614		9,214		—			14,885
Equity:
Stockholders’ equity		6,260		13,284		14,328		(27,612	)		6,260
Noncontrolling interests		—		—		331		—			331
		6,260		13,284		14,659		(27,612	)		6,591
Total liabilities and equity	$	11,317	$	13,898	$	23,873	$	(27,612	)	$	21,476

26

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended June 30, 2011

(Unaudited)

				WM			Non-Guarantor
	WM			Holdings			Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	3,347		$	—		$	3,347
Costs and expenses		—			—			2,841			—			2,841
Income from operations		—			—			506			—			506
Other income (expense):
Interest income (expense)		(86	)		(8	)		(23	)		—			(117	)
Equity in subsidiaries, net of taxes		290			295			—			(585	)		—
Other, net		—			—			(8	)		—			(8	)
		204			287			(31	)		(585	)		(125	)
Income before income taxes		204			287			475			(585	)		381
Provision for (benefit from) income taxes		(33	)		(3	)		167			—			131
Consolidated net income		237			290			308			(585	)		250
Less: Net income attributable to noncontrolling interests		—			—			13			—			13
Net income attributable to Waste Management, Inc.	$	237		$	290		$	295		$	(585	)	$	237

Three Months Ended June 30, 2010
(Unaudited)

				WM			Non-Guarantor
	WM			Holdings			Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	3,158		$	—		$	3,158
Costs and expenses		—			—			2,572			—			2,572
Income from operations		—			—			586			—			586
Other income (expense):
Interest income (expense)		(78	)		(9	)		(27	)		—			(114	)
Equity in subsidiaries, net of taxes		293			299			—			(592	)		—
Other, net		—			—			(8	)		—			(8	)
		215			290			(35	)		(592	)		(122	)
Income before income taxes		215			290			551			(592	)		464
Provision for (benefit from) income taxes		(31	)		(3	)		240			—			206
Consolidated net income		246			293			311			(592	)		258
Less: Net income attributable to noncontrolling interests		—			—			12			—			12
Net income attributable to Waste Management, Inc.	$	246		$	293		$	299		$	(592	)	$	246

27

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS — (Continued)

Six Months Ended June 30, 2011
(Unaudited)

				WM			Non-Guarantor
	WM			Holdings			Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	6,450		$	—		$	6,450
Costs and expenses		—			—			5,517			—			5,517
Income from operations		—			—			933			—			933
Other income (expense):
Interest income (expense)		(171	)		(17	)		(47	)		—			(235	)
Equity in subsidiaries, net of taxes		527			537			—			(1,064	)		—
Other, net		—			—			(11	)		—			(11	)
		356			520			(58	)		(1,064	)		(246	)
Income before income taxes		356			520			875			(1,064	)		687
Provision for (benefit from) income taxes		(67	)		(7	)		315			—			241
Consolidated net income		423			527			560			(1,064	)		446
Less: Net income attributable to noncontrolling interests		—			—			23			—			23
Net income attributable to Waste Management, Inc.	$	423		$	527		$	537		$	(1,064	)	$	423

Six Months Ended June 30, 2010
(Unaudited)

				WM			Non-Guarantor
	WM			Holdings			Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	6,093		$	—		$	6,093
Costs and expenses		—			—			5,095			—			5,095
Income from operations		—			—			998			—			998
Other income (expense):
Interest income (expense)		(153	)		(19	)		(54	)		—			(226	)
Equity in subsidiaries, net of taxes		521			533			—			(1,054	)		—
Other, net		—			—			(6	)		—			(6	)
		368			514			(60	)		(1,054	)		(232	)
Income before income taxes		368			514			938			(1,054	)		766
Provision for (benefit from) income taxes		(60	)		(7	)		383			—			316
Consolidated net income		428			521			555			(1,054	)		450
Less: Net income attributable to noncontrolling interests		—			—			22			—			22
Net income attributable to Waste Management, Inc.	$	428		$	521		$	533		$	(1,054	)	$	428

28

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


Six Months Ended June 30, 2011
(Unaudited)

				WM			Non-Guarantor
	WM			Holdings			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Consolidated net income	$	423		$	527		$	560		$	(1,064	)	$	446
Equity in earnings of subsidiaries, net of taxes		(527	)		(537	)		—			1,064			—
Other adjustments		2			(3	)		633			—			632
Net cash provided by (used in) operating activities		(102	)		(13	)		1,193			—			1,078
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		—			—			(157	)		—			(157	)
Capital expenditures		—			—			(596	)		—			(596	)
Proceeds from divestitures of businesses (net of cash divested) and other sales of assets		—			—			13			—			13
Net receipts from restricted trust and escrow accounts and other, net		(5	)		—			(79	)		—			(84	)
Net cash used in investing activities		(5	)		—			(819	)		—			(824	)
Cash flows from financing activities:
New borrowings		396			—			8			—			404
Debt repayments		—			(147	)		(167	)		—			(314	)
Common stock repurchases		(168	)		—			—			—			(168	)
Cash dividends		(323	)		—			—			—			(323	)
Exercise of common stock options		35			—			—			—			35
Distributions paid to noncontrolling interests and other		(10	)		—			(49	)		—			(59	)
(Increase) decrease in intercompany and investments, net		37			160			(197	)		—			—
Net cash provided by (used in) financing activities		(33	)		13			(405	)		—			(425	)
Effect of exchange rate changes on cash and cash equivalents		—			—			3			—			3
Decrease in cash and cash equivalents		(140	)		—			(28	)		—			(168	)
Cash and cash equivalents at beginning of period		465			—			74			—			539
Cash and cash equivalents at end of period	$	325		$	—		$	46		$	—		$	371

29

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS — (Continued)

Six Months Ended June 30, 2010
(Unaudited)

				WM			Non-Guarantor
	WM			Holdings			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Consolidated net income	$	428		$	521		$	555		$	(1,054	)	$	450
Equity in earnings of subsidiaries, net of taxes		(521	)		(533	)		—			1,054			—
Other adjustments		9			(2	)		519			—			526
Net cash provided by (used in) operating activities		(84	)		(14	)		1,074			—			976
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		—			—			(237	)		—			(237	)
Capital expenditures		—			—			(475	)		—			(475	)
Proceeds from divestitures of businesses (net of cash divested) and other sales of assets		—			—			27			—			27
Net receipts from restricted trust and escrow accounts and other, net		—			—			(138	)		—			(138	)
Net cash used in investing activities		—			—			(823	)		—			(823	)
Cash flows from financing activities:
New borrowings		592			—			114			—			706
Debt repayments		(17	)		(35	)		(161	)		—			(213	)
Common stock repurchases		(286	)		—			—			—			(286	)
Cash dividends		(305	)		—			—			—			(305	)
Exercise of common stock options		13			—			—			—			13
Distributions paid to noncontrolling interests and other		(13	)		—			(25	)		—			(38	)
(Increase) decrease in intercompany and investments, net		39			52			(91	)		—			—
Net cash provided by (used in) financing activities		23			17			(163	)		—			(123	)
Effect of exchange rate changes on cash and cash equivalents		—			—			(1	)		—			(1	)
Increase (decrease) in cash and cash equivalents		(61	)		3			87			—			29
Cash and cash equivalents at beginning of period		1,093			—			47			—			1,140
Cash and cash equivalents at end of period	$	1,032		$	3		$	134		$	—		$	1,169

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WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.   New Accounting Pronouncement Pending Adoption

Fair Value Measurement — In May 2011, the FASB amended authoritative guidance associated with fair value measurements. This amended guidance defines certain requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles. The amendments to authoritative guidance associated with fair value measurements are effective for the Company on January 1, 2012 and are to be applied prospectively. We are in the process of assessing the provisions of this new guidance and currently do not expect that the adoption will have a material impact on our consolidated financial statements.

15.   Subsequent Event

On July 28, 2011, we acquired Oakleaf Global Holdings and its primary operations for $425 million, subject to certain working capital and other adjustments. The acquisition was funded with a combination of cash on hand and cash borrowed under our $2.0 billion revolving credit facility.

The acquired operations of Oakleaf Global Holdings, a privately-owned waste services company providing outsourced waste and recycling services through a nationwide network of third-party haulers, generated approximately $580 million in revenues in 2010. We acquired Oakleaf Global Holdings to advance our growth and transformation strategies. The acquisition is intended to increase our national accounts customer base and enhance our ability to provide comprehensive environmental solutions.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included under Item 1 and our Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2010.

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 the 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 Condensed Consolidated Financial Statements and the notes thereto.

Some of the risks that we face and that could affect our financial statements for 2011 and beyond and that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company include the following:

•  volatility and deterioration in the credit markets, inflation and other general and local economic conditions may negatively affect the volumes of waste generated;

•  competition may negatively affect our profitability or cash flows, our pricing strategy may have negative effects on volumes, and inability to execute our pricing strategy in order to retain and attract customers may negatively affect our average yield on collection and disposal business;

•  increasing use by customers of alternatives to traditional disposal, government mandates requiring recycling and prohibiting disposal of certain types of waste, and overall reduction of waste generated could continue to have a negative effect on volumes of waste going to landfills and waste-to-energy facilities;

•  we may fail in implementing our optimization initiatives and business strategy, which could adversely impact our financial performance and growth;

•  weather conditions and one-time special projects cause our results to fluctuate, and harsh weather or natural disasters may cause us to temporarily suspend operations;

•  possible changes in our estimates of costs for site remediation requirements, final capping, closure and post-closure obligations, compliance and regulatory developments may increase our expenses;

•  regulations may negatively impact our business by, among other things, restricting our operations, increasing costs of operations or requiring additional capital expenditures;

•  climate change legislation, including possible limits on carbon emissions, may negatively impact our results of operations by increasing expenses related to tracking, measuring and reporting our greenhouse gas emissions and increasing operating costs and capital expenditures that may be required to comply with any such legislation;

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•  if we are unable to obtain and maintain permits needed to open, operate, and/or expand our facilities, our results of operations will be negatively impacted;

•  limitations or bans on disposal or transportation of out-of-state, cross-border, or certain categories of waste, as well as mandates on the disposal of waste, can increase our expenses and reduce our revenue;

•  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;

•  fuel price increases or fuel supply shortages may increase our expenses or restrict our ability to operate;

•  some of our customers, including governmental entities, have suffered financial difficulties that could affect our business and operating results, due to their credit risk and the impact of the municipal debt market on remarketing of our tax-exempt bonds;

•  increased costs or the inability to obtain financial assurance or the inadequacy of our insurance coverage could negatively impact our liquidity and increase our liabilities;

•  possible charges as a result of shut-down operations, uncompleted development or expansion projects or other events may negatively affect earnings;

•  fluctuations in commodity prices may have negative effects on our operating results;

•  efforts by labor unions to organize our employees may increase operating expenses and we may be unable to negotiate acceptable collective bargaining agreements with those who have chosen to be represented by unions, which could lead to labor disruptions, including strikes and lock-outs, which could adversely affect our results of operations and cash flows;

•  we could face significant liability for withdrawal from multiemployer pension plans;

•  negative outcomes of litigation or threatened litigation or governmental proceedings may increase our costs, limit our ability to conduct or expand our operations, or limit our ability to execute our business plans and strategies;

•  problems with the operation of our current information technology or the development and deployment of new information systems could decrease our efficiencies and increase our costs;

•  our existing and proposed service offerings to customers may require that we develop or license, and protect, new technologies; and our inability to obtain or protect new technologies could impact our services to customers and development of new revenue sources;

•  the adoption of new accounting standards or interpretations may cause fluctuations in reported quarterly results of operations or adversely impact our reported results of operations;

•  we may reduce or suspend capital expenditures, acquisition activity, dividend declarations or share repurchases if we suffer a significant reduction in cash flows; and

•  we may be unable to incur future indebtedness on terms we deem acceptable or to refinance our debt obligations, including near-term maturities, on acceptable terms and higher interest rates and market conditions may increase our expenses.

General

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 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

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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.

Overview

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 manage; and continuously improve our operational efficiency. Our strategy considers the increasing focus on waste reduction at the source and diversion from landfills as customers seek alternative methods of disposal. Accordingly, our strategic focus is reflective of current developments in our industry. 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;

•  Grow into new markets by investing in greener technologies; and

•  Pursue initiatives that improve our operations and cost structure.

These efforts will be enabled by improved information technologies. We believe that execution of our strategy, including making the investments required by our strategy, will provide long-term value to our stockholders.

Our second quarter 2011 results of operations reflect the impact of improved recyclable commodity prices and recycling volumes, our discipline in pricing and our continued investment in our strategic initiatives. Highlights of our financial results for the current quarter include:

•  Revenues of $3,347 million compared with $3,158 million in the second quarter of 2010, an increase of $189 million, or 6.0%. This increase in revenues is primarily attributable to:

•  Internal revenue growth from yield on our collection and disposal business of 1.6% in the current period, which increased revenue by $43 million;

•  Increases from recyclable commodity prices of $74 million; increases primarily from our fuel surcharge program of $53 million; and increases from foreign currency translation of $12 million; and

•  Increases associated with acquired businesses of $57 million;

•  Internal revenue growth from volume was negative 1.7%, compared with negative 2.9% in 2010. In addition to the lower rate of decline driven by changes in the economy, we experienced an increase in recycling volumes in both our brokerage business and our material recovery facilities. The year-over-year decline in internal revenue growth due to volume was $52 million;

•  Operating expenses of $2,140 million, or 63.9% of revenues, compared with $1,996 million, or 63.2% of revenues, in the second quarter of 2010. This increase of $144 million, or 7.2%, is due primarily to higher customer rebates because of higher recyclable commodity prices, higher fuel prices, and increases resulting from acquisitions and growth initiatives, all of which have related revenue increases as noted above. We also experienced increases in maintenance and repairs and our risk management costs. These cost increases were partially offset by a decrease in environmental remediation expense;

•  Selling, general and administrative expenses increased by $37 million, or 10.7%, from $345 million in the second quarter of 2010 to $382 million in the second quarter of 2011, largely due to the support of our strategic growth plans and optimization initiatives. We expect to begin to see the associated benefits in the third quarter and expect the benefits to accelerate into future quarters;

•  Income from operations of $506 million, or 15.1% of revenues, compared with $586 million, or 18.6% of revenues, in the second quarter of 2010; and

34

•  Net income attributable to Waste Management, Inc. of $237 million, or $0.50 per diluted share, as compared with $246 million, or $0.51 per diluted share in the second quarter of 2010. The comparability of our diluted earnings per share has been affected by the following items that occurred in the second quarter of 2010:

•  The recognition of a pre-tax cash benefit of $77 million related to the settlement of a lawsuit related to the abandonment of revenue management software, which had a favorable impact of $0.10 on our diluted earnings per share;

•  The recognition of a tax charge of $37 million principally related to refinements in estimates of our deferred state income taxes, which had a negative impact of $0.08 on our diluted earnings per share; and

•  The recognition of a pre-tax non-cash charge of $39 million related to increases in our environmental remediation reserves principally related to two landfill sites, which had a negative impact of $0.05 on our diluted earnings per share.

We intend to continue our commitment to investing in and executing our strategy. On the revenue front, we anticipated that our second quarter revenue growth from yield would decrease from our first quarter revenue growth from yield; however, the degree of decline exceeded our expectations. Consequently, we are immediately taking pricing actions intended to increase our yield over the remainder of 2011 and, as a result, we continue to expect our overall revenue growth from yield to be approximately 2.0% for the full year. Additionally, based on our results in the first half of 2011 and our economic outlook for the remainder of the year, we now expect our revenue growth from volumes to be in the range of negative 1.5% to negative 2.5% for the full year.

Free Cash Flow

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 also 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 greater 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:

	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net cash provided by operating activities	$	478		$	480		$	1,078		$	976
Capital expenditures		(280	)		(220	)		(596	)		(475	)
Proceeds from divestitures of businesses (net of cash divested) and other sales of assets		8			15			13			27
Free cash flow	$	206		$	275		$	495		$	528

When comparing our cash flow from operating activities for the three months and six months ended June 30, 2011 to the comparable periods in 2010, decreases in our income tax payments have positively affected our cash flow from operations this year, offset partially by a favorable cash benefit of $77 million in the prior year resulting from a litigation settlement in April 2010. The increase in capital expenditures when comparing the first half of 2011 with the prior year period can generally be attributed to timing differences associated with cash payments for the previous years’ fourth quarter capital spending. We generally use a significant portion of our free cash flow on capital spending in the fourth quarter of each year. A more significant portion of our fourth quarter 2010 spending was paid in cash in the first quarter of 2011 than in the preceding year.

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Adoption of New Accounting Pronouncements

Multiple-Deliverable Revenue Arrangements — In October 2009, the Financial Accounting Standards Board (“FASB”) amended authoritative guidance associated with multiple-deliverable revenue arrangements. This amended guidance addresses the determination of when individual deliverables within an arrangement are required to 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 has been applied prospectively to arrangements entered into or materially modified after the date of adoption. The adoption of this guidance has not had a material impact on our consolidated financial statements. However, our adoption of this guidance may significantly impact our accounting and reporting for future revenue arrangements to the extent they are material.

Critical Accounting Estimates and Assumptions

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, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2010. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Subsequent Event — Acquisition of Oakleaf Global Holdings

On July 28, 2011, we acquired Oakleaf Global Holdings and its primary operations for $425 million, subject to certain working capital and other adjustments. The acquisition was funded with a combination of cash on hand and cash borrowed under our $2.0 billion revolving credit facility.

The acquired operations of Oakleaf Global Holdings, a privately-owned waste services company providing outsourced waste and recycling services through a nationwide network of third-party haulers, generated approximately $580 million in revenues in 2010. We acquired Oakleaf Global Holdings to advance our growth and transformation strategies. The acquisition is intended to increase our national accounts customer base and enhance our ability to provide comprehensive environmental solutions.

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.

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, integrated medical waste services and the impacts of investments that we are making in expanded service offerings and solutions. 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, we have made investments that involve the acquisition and development of interests in oil and gas producing properties, and we will continue to consider similar investments in the future. These operations are presented as “Other” in the table below. Shown

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below (in millions) is the contribution to revenues during each period provided by our five Groups and our Other services:

	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
	2011			2010			2011			2010
Eastern	$	800		$	774		$	1,504		$	1,459
Midwest		828			780			1,556			1,474
Southern		862			876			1,700			1,699
Western		825			799			1,615			1,563
Wheelabrator		226			217			436			423
Other		330			225			623			440
Intercompany		(524	)		(513	)		(984	)		(965	)
Total	$	3,347		$	3,158		$	6,450		$	6,093

The mix of operating revenues from our major lines of business is reflected in the table below (in millions):

	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
	2011			2010			2011			2010
Collection	$	2,116		$	2,082		$	4,137		$	4,056
Landfill		671			664			1,250			1,226
Transfer		334			351			628			663
Wheelabrator		226			217			436			423
Recycling		419			281			789			550
Other		105			76			194			140
Intercompany		(524	)		(513	)		(984	)		(965	)
Total	$	3,347		$	3,158		$	6,450		$	6,093

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 for the						Change for the
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011 vs. 2010						2011 vs. 2010
				As a % of						As a % of
				Total						Total
	Amount			Company(a)			Amount			Company(a)
Average yield(b)	$	173			5.5	%	$	335			5.5	%
Volume		(52	)		(1.7	)		(103	)		(1.7	)
Internal revenue growth		121			3.8			232			3.8
Acquisitions		57			1.8			105			1.7
Divestitures		(1	)		—			(1	)		—
Foreign currency translation		12			0.4			21			0.4
	$	189			6.0	%	$	357			5.9	%

(a) Calculated by dividing the amount of current period increase or decrease by the prior period’s total Company revenue adjusted to exclude the impacts of divestitures for the current period ($3,157 million and $6,092 million for the three- and six-month periods, respectively).

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(b) The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company. We 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:

	Period-to-Period					Period-to-Period
	Change for the					Change for the Six
	Three Months Ended					Months Ended
	June 30,					June 30,
	2011 vs. 2010					2011 vs. 2010
			As a % of					As a % of
			Related					Related
	Amount		Business(i)			Amount		Business(i)
Average yield:
Collection, landfill and transfer	$	41		1.6	%	$	110		2.2	%
Waste-to-energy disposal(ii)		2		1.7			2		0.9
Collection and disposal(ii)		43		1.6			112		2.2
Recycling commodities		74		25.1			132		23.2
Electricity(ii)		3		4.8			3		2.3
Fuel surcharges and mandated fees		53		46.9			88		41.5
Total	$	173		5.5		$	335		5.5

(i) Calculated by dividing the increase or decrease for the current period by the prior period’s related business revenue, adjusted to exclude the impacts of divestitures for the current period. The table below summarizes the related business revenues for the three and six months ended June 30, 2010 adjusted to exclude the impacts of divestitures:

	Denominator
	Three Months		Six Months
	Ended		Ended
	June 30		June 30
Related business revenues:
Collection, landfill and transfer	$	2,567	$	4,959
Waste-to-energy disposal		120		223
Collection and disposal		2,687		5,182
Recycling commodity		295		570
Electricity		62		128
Fuel surcharges and mandated fees		113		212
Total Company	$	3,157	$	6,092

(ii) Average revenue growth from yield for “Collection and disposal” excludes all electricity-related revenues generated by our Wheelabrator Group, which are reported as “Electricity” revenues.

Our revenues increased $189 million, or 6.0%, for the three months ended June 30, 2011 as compared with the prior year period and $357 million, or 5.9%, for the six months ended June 30, 2011 as compared with the prior year period. During the three- and six-month periods, our current period revenue growth has been driven by (i) market factors, including higher recyclable commodity prices; higher diesel fuel prices, which increase revenues provided by our fuel surcharge program; and foreign currency translation, which affects revenues from our Canadian operations; (ii) revenue growth from average yield on our collection and disposal operations; and (iii) acquisitions. Offsetting these revenue increases were revenue declines due to lower volumes.

The following provides further details associated with our period-to-period change in revenues.

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Average yield

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. 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.

For the first six months of 2011, our revenue growth from yield on our collection and disposal lines of business was $112 million, or 2.2%. 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. As discussed below, increased collection revenues due to average yield have been more than offset by revenue declines from lower collection volumes. However, revenue growth from yield on base business and our efforts toward controlling variable costs continue to favorably influence margin changes in our collection line of business.

The current quarter revenue growth from collection and disposal average yield was $43 million, or 1.6%, as compared with the prior year period. This revenue increase from yield was primarily driven by our collection operations. We also experienced yield growth from our disposal operations.

Our 1.6% increase for the three months ended June 30, 2011 is less than the 2.2% increase for the six-month period. This is due in large part to our residential line of business, in which we have experienced downward pressure on our revenue growth from yield across most of our geographic groups, most notably in our Southern Group. Because it has become increasingly difficult to retain customers and to win new contracts at current average rates due to competition, the Company, in many instances, has offered increased services, principally recycling services, when bidding on or renewing residential contracts. This bundling of certain complementary services with existing services in such residential contracts has put added pressure on our revenue growth from yield.

Our total collection and disposal revenue growth from yield has also been negatively affected during the second quarter of 2010 by other factors, primarily in our Southern Group, including the year-over-year impact of the conclusion of the oil spill clean-up project in the gulf coast region, which was generally at higher than average rates as compared with our average base business, and the negative effect of changes in the mix of our temporary and permanent customers in our industrial business, particularly in North and South Florida. Overall, we have found that increasing our revenue growth from yield in today’s market is a challenge given the reduced volume levels resulting from the economic slowdown, the increased service offerings in many of our new contracts, and the highly competitive environment. Additionally, a significant portion of our collection revenues are generated under long-term franchise agreements with municipalities or similar local or regional authorities. Price adjustments under these agreements are typically based on inflation indices, which have been at historic lows over the past two years, although recent data has trended upward. Despite this headwind, we are committed to maintaining pricing discipline in order to improve revenue growth from yield on our base business, particularly during the second half of 2011.

Revenues from our environmental fee, which are included in average revenue growth from yield on collection and disposal, were essentially flat for the three month year-over-year comparison, but increased $12 million for the six month year-over-year comparison. During the second quarter of 2010, we increased our environmental fee from 6.0% to 7.5%, which anniversaried in the second quarter of 2011. These revenues were $66 million and $129 million during the three and six months ended June 30, 2011, respectively, as compared with $66 million and $117, respectively, million in the comparable prior year periods.

Recycling commodities — Increases in the prices of the recycling commodities we process resulted in an increase in revenues of $74 million for the three months ended June 30, 2011 and $132 million for the six months ended June 30, 2011 as compared with the respective prior year periods. For the first six months of this year, overall commodity prices have increased almost 25% as compared with the first six months of last year.

Fuel surcharges and mandated fees — These revenues, which are predominantly generated by our fuel surcharge program, increased by $53 million and $88 million during the three and six months ended June 30, 2011, respectively. This increase is directly attributable to higher national average prices for 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 of

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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 $52 million, or 1.7%, and $103 million, or 1.7%, for the three and six months ended June 30, 2011, respectively. This is a notable lessening of the rate of revenue decline due to volume from the prior year period when revenue declines due to volume were $86 million, or 2.9%, and $228 million, or 4.0%, for the three and six months ended June 30, 2010, respectively. Volume declines are generally attributable to economic conditions, pricing, competition and increasing focus on waste reduction and diversion by consumers. Additionally, the oil spill clean-up projects in the gulf coast region during the second quarter of 2010 unfavorably impacted our year-over-year volume comparison in the current period.

Volume declines from our collection business accounted for $90 million and $172 million of volume-related revenue decline for the three and six months ended June 30, 2011, respectively. For the first six months of 2011, we experienced commercial and residential collection revenue declines due to lower volume 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. 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. Additionally, we experienced revenue declines due to lower volumes at our waste-to-energy facilities, primarily driven by the expiration of a long-term electric power capacity agreement on December 31, 2010, although these declines were offset, to some extent, by volume-related revenue increases associated with an increase in tons of waste processed by our waste-to-energy plants and electricity production.

Revenue declines due to volume detailed above were offset in part by revenue increases of $37 million and $71 million for the three and six months ended June 30, 2011, respectively, primarily from year-over-year volume improvements in our recycling brokerage business and in our material recovery facilities. We also experienced volume-related revenue increases of $13 million and $24 million for the three and six months ended June 30, 2011, respectively, from our strategic growth businesses and our landfill gas-to-energy operations. Additionally, our landfill revenues increased $4 million and $9 million due to higher third-party volumes during the three and six months ended June 30, 2011, respectively, as compared with the relative prior year periods. The increase was principally due to higher special waste volumes. However, our landfill municipal solid waste volumes continued to decline during the three and six months ended June 30, 2011 as compared with the relative prior year periods due to economic conditions, increased pricing, competition and increased focus on waste reduction and diversion by consumers.

We continue to strive for positive revenue growth from volumes; however, the impacts of (i) the continued weakness of the overall economic environment on our commercial and residential businesses; (ii) increasing focus on waste reduction and diversion by consumers; and (iii) pricing and competition continue to present challenges to maintaining and growing volumes.

Acquisitions and divestitures — Revenue increases from acquisitions were principally in the collection and recycling lines of business, in our waste-to-energy line of business and in our “Other” businesses, demonstrating our current focus on identifying strategic growth opportunities in new, complementary lines of business.

Operating Expenses

Our operating expenses increased $144 million, or 7.2%, and $258 million, or 6.7%, when comparing the three and six months ended June 30, 2011 with the comparable prior-year periods, respectively. Our operating expenses as a percentage of revenues increased from 63.2% in the second quarter of 2010 to 63.9% in the current quarter, and increased from 63.6% for the six months ended June 30, 2010 to 64.1% for the six months ended June 30, 2011. The changes in our operating expenses during the three and six months ended June 30, 2011 can largely be attributed to the following:

•  Higher market prices for recyclable commodities — Overall, market prices for recyclable commodities increased almost 25% as compared with prior year levels on a year-to-date basis. The year-over-year

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increase is the result of the continued increase in recyclable commodity prices from the near-historic lows reached in late 2008 and early 2009. In March 2011, market prices almost attained the decade-high levels reached during the third quarter of 2008 and remained very close to this level during the second quarter. This increase in market prices was the main driver of the current quarter increase in cost of goods sold, primarily customer recycling rebates, as presented in the table below and has also resulted in increased revenues and earnings this year;

•  Fuel cost increases — On average, diesel fuel prices increased 30% from $2.94 per gallon in the first half of 2010 to $3.82 per gallon in the first half of 2011. Higher fuel costs caused increases in both our direct fuel costs and in the fuel component of our subcontractor costs for the three and six months ended June 30, 2011. The unfavorable impact of year-over-year increases in fuel prices on our operating costs was offset by increased revenues attributable to our fuel surcharge program;

•  Acquisitions and growth initiatives — We have experienced cost increases attributable to recently acquired businesses and, to a lesser extent, our various growth and business development initiatives. We estimate that these cost increases affected each of the operating cost categories identified in the table below and accounted for over 35% of our total $258 million increase in operating expenses year-to-date. The increase in costs resulting from acquired businesses was more than offset by increased revenues from acquired businesses; and

•  Volume declines — During the first half of 2011, we continued to experience volume declines as a result of the ongoing weakness of the overall economic environment, pricing, competition and increased focus on waste reduction and diversion by consumers. We continue to manage our fixed costs and reduce our variable costs as we experience volume declines and have achieved 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, which include the impact of foreign currency translation, for the three- and six-month periods ended June 30 (dollars in millions):

	Three Months									Six Months
	Ended				Period-to-					Ended				Period-to-
	June 30,				Period					June 30,				Period
	2011		2010		Change					2011		2010		Change
Labor and related benefits	$	582	$	567	$	15		2.6	%	$	1,145	$	1,147	$	(2	)	(0.2	)%
Transfer and disposal costs		243		249		(6	)	(2.4	)		463		469		(6	)	(1.3	)
Maintenance and repairs		279		262		17		6.5			558		530		28		5.3
Subcontractor costs		201		195		6		3.1			381		360		21		5.8
Cost of goods sold		276		181		95		52.5			516		354		162		45.8
Fuel		166		127		39		30.7			310		244		66		27.0
Disposal and franchise fees and taxes		154		152		2		1.3			295		289		6		2.1
Landfill operating costs		64		110		(46	)	(41.8	)		124		175		(51	)	(29.1	)
Risk management		63		46		17		37.0			119		99		20		20.2
Other		112		107		5		4.7			224		210		14		6.7
	$	2,140	$	1,996	$	144		7.2	%	$	4,135	$	3,877	$	258		6.7	%

Significant year-over-year changes in our operating expenses by category are discussed below.

•  Labor and related benefits — The current quarter increase was due to higher hourly and salaried wages due to merit increases and additional employee expenses incurred from acquisitions and growth opportunities, offset in part by a decrease in bonus expense and cost savings that have been achieved in the current year as volumes have declined. On a year-to-date basis this net increase has been more than offset by (i) a prior year $28 million charge incurred by our Midwest Group as a result of bargaining unit employees in Michigan and Ohio agreeing to our proposal to withdraw them from an underfunded multiemployer pension plan; and (ii) cost savings that have been achieved in the current year as volumes have declined.

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•  Maintenance and repairs — The increase was due to (i) higher costs in our geographic groups largely attributable to increased fleet maintenance costs, which include services provided by third-parties, tires, parts and internal shop labor costs; and (ii) differences in the timing and scope of planned maintenance projects at our waste-to-energy and landfill gas-to-energy facilities. The increase in expense for tires and parts reflects the world-wide increase in commodity prices. The increase in our Wheelabrator Group primarily relates to additional costs to improve our Portsmouth, Virginia waste-to-energy facility, which we acquired in April 2010.

•  Subcontractor costs — The current year increase in subcontractor costs was primarily a result of increased diesel fuel prices, recent acquisitions, our various growth and business development initiatives and additional costs associated with the servicing of our Sustainability Services customers. These increases were partially offset by the impacts of (i) additional prior year costs attributable to the oil spill clean-up projects in the gulf coast region during the second quarter; and (ii) cost savings that have been achieved in the current year as volumes have declined.

•  Cost of goods sold — The significant increase was primarily from higher customer rebates as a result of the improvement in recycling commodity pricing discussed above and, to a lesser extent, increases in the volume of materials our existing recycling facilities processed and increases resulting from recently acquired businesses.

•  Fuel — Higher direct costs for diesel fuel were due to an increase in market prices on a year-over-year basis of 30% for the six months ended June 30, 2011.

•  Landfill operating costs — The decrease in these costs during the current year was due largely to (i) the prior year recognition of charges of $39 million during the second quarter for revisions of estimates associated with remedial liabilities at two landfills that were closed prior to our acquisition of predecessor companies that operated these sites and (ii) the prior year recognition of an unfavorable adjustment of $10 million during the second quarter due to the decrease in United States Treasury rates. During the second quarter of 2010, the discount rate used to estimate the present value of our environmental remediation obligations and recovery assets decreased from 3.75% to 3.00%.

•  Risk management — The current year increase in risk management costs was primarily a result of several significant auto and general liability claims in the current year and the prior year recognition of a favorable adjustment associated with prior period claims.

•  Other — The increase in these costs during the current year was attributable, in part, to our various growth and business development initiatives and recently acquired businesses. These cost increases were offset in part by prior year costs attributable to the oil spill clean-up project in the gulf coast region during the second quarter of 2010.

Selling, General and Administrative

Our selling, general and administrative expenses increased $37 million, or 10.7%, and $68 million, or 9.8%, when comparing the three and six months ended June 30, 2011 with the comparable prior-year periods. The increases are largely due to (i) increased consulting fees of $15 million and $31 million during the three- and six-month periods, respectively, incurred during the start-up phase of new cost savings programs focusing on procurement savings and operational and back-office efficiency; (ii) increased expenses of $8 million and $12 million during the three- and six-month periods, respectively, resulting from improvements we are making to our information technology systems; (iii) increased expenses of $1 million and $7 million during the three- and six-month periods, respectively, attributable to our long-term incentive plan, or LTIP; and (iv) additional expenses, principally in labor and related benefits, incurred to support our strategic plan to grow into new markets and provide expanded service offerings, as well as merit increases. Our selling, general and administrative expenses as a percentage of revenues increased from 10.9% for the second quarter of 2010 to 11.4% for the second quarter of 2011, and increased from 11.4% for the six months ended June 30, 2010 to 11.8% for the six months ended June 30, 2011.

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The following table summarizes the major components of our selling, general and administrative expenses for the three-and six-month periods ended June 30 (dollars in millions):

	Three Months									Six Months
	Ended				Period-to-					Ended				Period-to-
	June 30,				Period					June 30,				Period
	2011		2010		Change					2011		2010		Change
Labor and related benefits	$	217	$	202	$	15		7.4	%	$	443	$	410	$	33		8.0	%
Professional fees		53		41		12		29.3			107		83		24		28.9
Provision for bad debts		8		10		(2	)	(20.0	)		17		22		(5	)	(22.7	)
Other		104		92		12		13.0			197		181		16		8.8
	$	382	$	345	$	37		10.7	%	$	764	$	696	$	68		9.8	%

Labor and related benefits — In 2011, our labor and related benefits expenses increased primarily due to (i) higher compensation costs due to an increase in headcount driven by our strategic growth plans and optimization initiatives; (ii) higher salaries and hourly wages due to merit increases; and (iii) higher non-cash compensation expenses incurred for our salary deferral plan, the costs of which are directly affected by equity-market conditions, and both our performance share units and our stock option equity awards granted under our LTIP during the first six months of 2011. Similar to the awards granted during 2010, the stock option equity awards that were granted in the first quarter of 2011 provide for continued vesting for three years following an employee’s retirement. 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. The increase in these costs in 2011 is attributable to a significant increase in the number of stock option awards granted in 2011 over those granted in 2010, and an increase in the number of retirement-eligible employees receiving those awards. The increase in the number of stock option awards granted in 2011 was driven in part by a change in the composition of our 2011 annual LTIP award grant compared with our 2010 annual LTIP award grant to utilize stock options to a greater extent and to reduce the amount of performance share units awarded.

These increases were offset, in part, by lower bonus expense in 2011 because our projected performance against targets established by our annual incentive plans is anticipated to be less favorable in 2011 as compared with the prior year.

Professional fees — In 2011, our professional fees increased due to increased consulting fees primarily associated with our new cost savings programs focusing on procurement savings and operational and back-office efficiency. We expect these fees to decrease significantly during the second half of 2011 and we expect to begin to see the associated benefits of these programs in the third quarter of 2011 and expect the benefits to accelerate into future quarters. This increase in consulting fees was slightly offset by (i) a reduction in legal fees associated primarily with the lawsuit related to the abandonment of revenue management software, which was settled in the second quarter of 2010, and (ii) lower costs during 2011 as compared with 2010 related to the expansion of our waste-to-energy business in China, Europe and the United States.

Provision for bad debts — The reduction in our provision for bad debts for the three and six months ended June 30, 2011 reflects management’s continued focus on the collection of our receivables.

Other — We experienced expense increases from litigation settlements and accruals, improvements we are making to our information technology systems and advertising related to our sales and marketing initiatives.

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Depreciation and Amortization

The following table summarizes the components of our depreciation and amortization expense for the three- and six-month periods ended June 30 (dollars in millions):

	Three Months								Six Months
	Ended				Period-to-				Ended				Period-to-
	June 30,				Period				June 30,				Period
	2011		2010		Change				2011		2010		Change
Depreciation of tangible property and equipment	$	200	$	197	$	3	1.5	%	$	399	$	391	$	8	2.0	%
Amortization of landfill airspace		108		102		6	5.9			197		189		8	4.2
Amortization of intangible assets		11		10		1	10.0			22		20		2	10.0
	$	319	$	309	$	10	3.2	%	$	618	$	600	$	18	3.0	%

(Income) Expense from Divestitures, Asset Impairments and Unusual Items

We filed a lawsuit in March 2008 related to the revenue management software implementation that was suspended in 2007 and abandoned in 2009. Accordingly, in 2009, we recognized a non-cash charge of $51 million for the abandonment of the licensed software. In April 2010, we settled the lawsuit and received a one-time cash payment. The settlement increased our “Income from operations” for the three and six months ended June 30, 2010 by $77 million.

Income from Operations by Reportable Segment

The following table summarizes income from operations by reportable segment for the three- and six-month periods ended June 30 (dollars in millions):

	Three Months											Six Months
	Ended						Period-to-					Ended						Period-to-
	June 30,						Period					June 30,						Period
	2011			2010			Change					2011			2010			Change
Reportable segments:
Eastern	$	141		$	143		$	(2	)	(1.4	)%	$	261		$	252		$	9		3.6	%
Midwest		156			141			15		10.6			285			223			62		27.8
Southern		193			206			(13	)	(6.3	)		385			406			(21	)	(5.2	)
Western		142			141			1		0.7			282			270			12		4.4
Wheelabrator		42			47			(5	)	(10.6	)		55			83			(28	)	(33.7	)
Other		(21	)		(26	)		5		(19.2	)		(35	)		(55	)		20		(36.4	)
		653			652			1		0.2			1,233			1,179			54		4.6
Corporate and Other		(147	)		(66	)		(81	)	122.7			(300	)		(181	)		(119	)	65.7
Total	$	506		$	586		$	(80	)	(13.7	)%	$	933		$	998		$	(65	)	(6.5	)%

Reportable Segments — During the three and six months ended June 30, 2011, the results of operations of each of our geographic Groups improved on a year-over-year basis as a result of revenue growth from yield on our base business and the significant year-over-year improvement in market prices for recyclable commodities. These increases in our geographic Groups’ 2011 results were offset, in part, by (i) a decrease in income from operations caused by continued volume declines due to the economy, pricing, competition and increasing focus on waste reduction and diversion by consumers; (ii) an increase in salaries and wages due to annual merit increases effective in April and (iii) an increase in maintenance and repairs expenses. The second quarter year-over-year decline in our Southern Group’s results was principally driven by these items.

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Other significant items affecting the comparability of our Groups’ results of operations for the three and six months ended June 30, 2011 and 2010 are summarized below:

Midwest — The income from operations of our Midwest Group for the six months ended June 30, 2010 was significantly affected by the recognition of a $28 million charge in March 2010 as a result of bargaining unit employees in Michigan and Ohio agreeing to our proposal to withdraw them from an underfunded multiemployer pension plan.

Southern — During the first quarter of 2011, the Group recognized a charge of $11 million related to litigation reserves. This charge was initially recognized in “Other” during the fourth quarter 2010. The Group’s operating results were also negatively affected by the volume decline previously discussed, which includes the unfavorable year-over-year impact of 2010 project volumes resulting from oil spill clean-up project in the gulf coast region.

Wheelabrator — The decrease in income from operations of our Wheelabrator Group for the three and six months ended June 30, 2011 as compared to the respective prior year periods was driven largely by (i) lower revenues due to the expiration of a long-term electric power capacity agreement on December 31, 2010; (ii) an increase in maintenance expense at our facility in Portsmouth, Virginia that we acquired in April 2010 and (iii) additional expenses recognized for litigation reserves and associated compliance costs. A portion of the expenses for litigation reserves and associated costs were initially recognized in “Other” during the fourth quarter of 2010. During the second quarter of 2011, the impact of these unfavorable items was partially offset by the benefit of an improvement in market prices for electricity and the timing of planned maintenance activities as compared with the prior year.

Significant items affecting the comparability of the remaining components of our results of operations for the three and six months ended June 30, 2011 and 2010 are summarized below:

Other — The favorable change in operating results during the six months ended June 30, 2011 is largely due to (i) 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 and (ii) a similar adjustment recorded in the current period to reduce bonus expense based on our projected performance against targets established by our annual incentive plans. The year-end adjustments were charged to the appropriate reportable segment in the current year and were primarily related to $15 million of additional expense recognized during the fourth quarter of 2010 for litigation reserves and associated costs in the Southern and Wheelabrator Groups. The current period adjustment will be charged to the appropriate reportable segment in the third quarter of 2011.

Corporate and Other — The change in expenses for the three and six months ended June 30, 2011 as compared with prior year is largely attributable to the following significant items:

•  the prior year benefit of $77 million resulting from a litigation settlement that occurred in April 2010;

•  the current year increase in “Selling, general and administrative” expenses as a result of cost increases attributable to (i) consulting fees related to start-up costs related to our new cost savings programs focusing on procurement savings and operational and back-office efficiency and (ii) additional compensation expense due to transfers of certain field sales organization employees to the Corporate sales organization, annual salary and wage increases, headcount increases to support the Company’s strategic initiatives, and an increase in costs attributable to our LTIP;

•  the current quarter and year-to-date increases in risk management costs, primarily a result of (i) several significant auto and general liability claims and (ii) the recognition of a favorable adjustment in the second quarter of 2010 associated with prior period claims;

•  the prior year recognition of charges of $39 million during the first half of 2010 for revisions in the estimated costs of our remedial liabilities at certain closed landfills; and

•  the prior year recognition of an unfavorable adjustment of $10 million due to the decrease in United States Treasury rates. During the second quarter of 2010, the discount rate used to estimate the present value of our environmental remediation obligations and recovery assets decreased from 3.75% to 3.00%.

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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 energy service offerings to effectively respond to the shifting demands of consumers and be a leader in environmental stewardship.

We are disclosing the following supplemental information related to the operating results of our renewable energy operations for the three and six months ended June 30, 2011 and 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. Although our Wheelabrator Group’s income from operations has declined year-over-year, we continue to make progress in the area of renewable energy.

	Three Months Ended June 30, 2011									Six Months Ended June 30, 2011
			Landfill		Growth							Landfill		Growth
	Wheelabrator		Gas-to-Energy(a)		Opportunities(b)			Total		Wheelabrator		Gas-to-Energy(a)		Opportunities(b)			Total
Operating revenues (including intercompany)	$	226	$	34	$	—		$	260	$	436	$	69	$	—		$	505
Costs and expenses:
Operating		142		15		1			158		298		29		1			328
Selling, general & administrative		25		1		1			27		50		2		2			54
Depreciation and amortization		17		5		—			22		33		13		—			46
		184		21		2			207		381		44		3			428
Income (loss) from operations	$	42	$	13	$	(2	)	$	53	$	55	$	25	$	(3	)	$	77

	Three Months Ended June 30, 2010								Six Months Ended June 30, 2010
			Landfill		Growth						Landfill		Growth
	Wheelabrator		Gas-to-Energy(a)		Opportunities(b)		Total		Wheelabrator		Gas-to-Energy(a)		Opportunities(b)			Total
Operating revenues (including intercompany)	$	217	$	31	$	—	$	248	$	423	$	59	$	—		$	482
Costs and expenses:
Operating		129		11		—		140		262		22		1			285
Selling, general & administrative		26		1		—		27		48		2		1			51
Depreciation and amortization		15		6		—		21		30		11		—			41
		170		18		—		188		340		35		2			377
Income (loss) from operations	$	47	$	13	$	—	$	60	$	83	$	24	$	(2	)	$	105

(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.

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Interest Expense

Our interest expense was $119 million and $240 million during the three and six months ended June 30, 2011 compared with $116 million and $228 million during the three and six months ended June 30, 2010. The $12 million, or 5.3%, increase in interest expense for the six-month period is primarily due to (i) higher costs related to our revolving credit facility and (ii) a decrease in the benefits to interest expense provided by interest rate swaps due to the scheduled maturity of various positions. The year-over-year increase in interest expense was less significant in the second quarter of 2011 than the first quarter of 2011 because we amended and restated our revolving credit facility in May 2011, significantly reducing the cost of the facility.

Equity in Net Losses of Unconsolidated Entities

Beginning in April 2010, our “Equity in net losses of unconsolidated entities” has been primarily related to our noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties, as well as (i) unconsolidated trusts for final capping, closure, post-closure or environmental obligations and (ii) noncontrolling investments made to support our strategic initiatives. In January 2011, we acquired a noncontrolling interest in a limited liability company established to invest in and manage a refined coal facility. The tax impacts realized as a result of our investments in low-income housing properties and the refined coal facility are discussed below in Provision for Income Taxes. Refer to Notes 5 and 12 to the Condensed Consolidated Financial Statements for more information related to these investments.

Provision for Income Taxes

We recorded a provision for income taxes of $131 million during the second quarter of 2011, representing an effective income tax rate of 34.5%, compared with a provision for income taxes of $206 million during the second quarter of 2010, representing an effective income tax rate of 44.2%. Our effective income tax rate for the first half of 2011 was 35.1% compared with 41.2% for the first half of 2010. The combination of decreased pre-tax income along with an increase in federal tax credits led to our overall reduction in our provision for income taxes. In addition, in the second quarter of 2010 we recorded an increase in our state deferred income taxes to reflect the impact of changes in the estimated income tax rate at which temporary differences would be realized.

Our investments in low-income housing properties and the refined coal facility reduced our provision for income taxes by $11 million and $4 million, respectively, for the three months ended June 30, 2011 and by $18 million and $7 million, respectively, for the six months ended June 30, 2011. Our tax provision for the three and six months ended June 30, 2010, was reduced by $11 million as a result of our investment in low-income housing properties. Refer to Note 5 to the Condensed Consolidated Financial Statements for more information related to these investments.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, signed into law on December 17, 2010, included an extension of the bonus depreciation allowance through the end of 2012 and increased 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 from September 8, 2010 through December 31, 2011. The acceleration of deductions on 2011 capital expenditures resulting from the bonus depreciation provision will have no impact on our effective tax rate. However, the ability to accelerate depreciation deductions is expected to decrease our 2011 cash taxes by approximately $190 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.

Noncontrolling Interests

Net income attributable to noncontrolling interests was $13 million and $23 million for the three and six months ended June 30, 2011 and $12 million and $22 million for the three and six months ended June 30, 2010. These amounts are principally related to third parties’ equity interests in two limited liability companies that own three waste-to-energy facilities operated by our Wheelabrator Group. Refer to Note 12 to the Condensed Consolidated Financial Statements for information related to the consolidation of these variable interest entities.

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Liquidity and Capital Resources

Summary of Cash and Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations

The following is a summary of our cash and cash equivalents, restricted trust and escrow accounts and debt balances as of June 30, 2011 and December 31, 2010 (dollars in millions):

	June 30,		December 31,
	2011		2010
Cash and cash equivalents	$	371	$	539
Restricted trust and escrow accounts:
Final capping, closure, post-closure and environmental remediation funds	$	120	$	120
Tax-exempt bond funds		5		14
Other		12		12
Total restricted trust and escrow accounts	$	137	$	146
Debt:
Current portion	$	198	$	233
Long-term portion		8,839		8,674
Total debt	$	9,037	$	8,907
Increase in carrying value of debt due to hedge accounting for interest rate swaps	$	85	$	79

As of June 30, 2011, we had $321 million of debt maturing within twelve months, including U.S. $144 million under our Canadian credit facility. The amount reported as the current portion of long-term debt as of June 30, 2011 excludes $123 million of these scheduled repayments because we have the intent and ability to refinance portions of our current maturities on a long-term basis.

Summary of Cash Flow Activity

The following is a summary of our cash flows for the six-month periods ended June 30 (in millions):

	Six Months
	Ended
	June 30,
	2011			2010
Net cash provided by operating activities	$	1,078		$	976
Net cash used in investing activities	$	(824	)	$	(823	)
Net cash used in financing activities	$	(425	)	$	(123	)

Net Cash Provided by Operating Activities — We generated $1,078 million of cash flows from operating activities during the six-month period ended June 30, 2011, compared with $976 million during the six-month period ended June 30, 2010. The $102 million increase year-over-year was primarily driven by the items summarized below:

•  Decreased income tax payments — Cash paid for income taxes, net of excess tax benefits associated with equity-based transactions, was approximately $171 million lower on a year-over-year basis. This decrease was due in part to the extension of the bonus depreciation allowance. The ability to accelerate depreciation deductions is expected to decrease our full year 2011 cash taxes by $190 million.

•  Litigation Settlement —  The year-over-year unfavorable comparison as a result of a $77 million litigation settlement in April 2010.

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•  Changes in assets and liabilities, net of effects from business acquisitions and divestitures — Our cash flow from operations was favorably impacted in 2011 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.

Net Cash Used in Investing Activities  — The most significant items included in our investing cash flows for the six-month periods ended June 30, 2011 and 2010 are summarized below:

•  Capital expenditures — We used $596 million during the first half of 2011 for capital expenditures compared with $475 million in the first half of 2010, an increase of $121 million. The increase can generally be attributed to timing differences associated with cash payments for the previous years’ fourth quarter capital spending. Approximately $206 million of our fourth quarter 2010 spending was paid in cash in the first quarter of 2011 compared with approximately $145 million of our fourth quarter 2009 spending that was paid in the first quarter of 2010.

•  Acquisitions — Our spending on acquisitions was $237 million in the first half of 2010 compared with $157 million in the first half of 2011. 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.

•  Investments in unconsolidated entities — We made $91 million of cash investments in unconsolidated entities during the first half of 2011. These investments included a $48 million payment made to acquire a noncontrolling interest in a limited liability company, which was established to invest in and manage a refined coal facility in North Dakota and $43 million of investments, primarily related to furthering our goal of growing into new markets by investing in greener technologies.

We made $161 million of cash investments in unconsolidated entities during the first half of 2010. These cash investments were primarily related to a $142 million payment made 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 participate in the operation and management of waste-to-energy and other waste services in the Chinese market. SEG’s focus also includes building new waste-to-energy facilities in China.

Net Cash Used in Financing Activities — During the six months ended June 30, 2011, net cash used in financing activities was $425 million, compared with $123 million during the comparable prior year period. The

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most significant items affecting the comparison of our financing cash flows for the six-month periods ended June 30, 2011 and 2010 are summarized below:

•  Debt borrowings and repayments — The following summarizes our cash borrowings and debt repayments during each period (in millions):

	Six Months
	Ended
	June 30,
	2011			2010
Borrowings:
Canadian credit facility	$	—		$	114
Senior notes		396			592
Capital leases and other debt		8			—
	$	404		$	706
Repayments:
Canadian credit facility	$	(77	)	$	(123	)
Senior notes		(147	)		—
Tax exempt bonds		(30	)		(52	)
Tax exempt project bonds		(25	)		—
Capital leases and other debt		(35	)		(38	)
	$	(314	)	$	(213	)
Net borrowings	$	90		$	493

Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to our debt borrowings and repayments.

•  Share repurchases and dividend payments — We repurchased 4.7 million shares of our common stock for $176 million during the first half of 2011, of which approximately $8 million was paid in July 2011 compared with 9.0 million shares of our common stock for $298 million during the first half of 2010, of which approximately $12 million was paid in July 2010.

We paid $323 million in cash dividends in the first half of 2011 compared with $305 million in the first half of 2010. The increase in dividend payments is due to our quarterly per share dividends declared increasing from $0.315 in 2010 to $0.34 in 2011, partially offset by a reduction in the number of our outstanding shares as a result of our share repurchase program.

Share repurchases during the remainder of 2011 will be made at the discretion of management, 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.

•  Other — Net cash used for our other financing activities was $17 million during the first six months of 2010 (including $13 million of financing costs paid to execute our $2.0 billion revolving credit facility) compared with $44 million during the first six months of 2011 (including $7 million of financing costs paid to amend and restate our $2.0 billion revolving credit facility). In 2011, the use of cash was driven by changes in our accrued liabilities for checks written in excess of related cash balances due to the timing of cash deposits or payments.

Liquidity Impacts of Uncertain Tax Positions

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 Condensed Consolidated Balance Sheet

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because the we generally do 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 anticipate that approximately $6 million of liabilities for unrecognized tax benefits, including accrued interest, and $2 million of related deferred tax assets may be reversed within the next twelve months. The anticipated reversals are related to state tax items, none of which are material, and are expected to result from audit settlements or the expiration of the applicable statute of limitations period.

Off-Balance Sheet Arrangements

We are party to guarantee arrangements with unconsolidated entities as discussed in the Guarantees section of Note 8 to the Condensed Consolidated Financial Statements. These arrangements have not materially affected our financial position, results of operations or liquidity during the six months ended June 30, 2011 nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

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. Historically, the volumes of industrial and residential waste in certain regions where we operate have tended 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 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.

Inflation

A significant portion of our collection revenues are generated under long-term agreements with price adjustments based on various indices intended to measure inflation. These indices have been at historic lows over the past two years, although recent data has trended upward. 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. 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.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Information about market risks as of June 30, 2011, does not differ materially from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2010.

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Item 4.   Controls and Procedures.

Effectiveness of Controls and Procedures

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2011 (the end of the period covered by this Quarterly Report on Form 10-Q).

Changes in Internal Controls over Financial Reporting

Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended June 30, 2011. We determined that there were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

Item 1.   Legal Proceedings.

Information regarding our legal proceedings can be found under the “Litigation” section of Note 8, Commitments and Contingencies, to the Condensed Consolidated Financial Statements.

Item 1A.   Risk Factors.

There have been no material changes from risk factors previously disclosed in our Form 10-K for the year ended December 31, 2010 in response to Item 1A to Part I of Form 10-K.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

In December 2010, the Board of Directors approved a capital allocation program that provides for up to $575 million in common stock repurchases for 2011. All of the common stock repurchases made in 2011 have been pursuant to this capital allocation program.

The following table summarizes common stock repurchases made during the second quarter of 2011:

Issuer Purchases of Equity Securities

					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)
April 1 — 30		695,854	$	37.99		695,854	$	481 Million
May 1 — 31		785,510	$	38.80		785,510	$	450 Million
June 1 — 30(c)		1,378,287	$	37.04		1,378,287	$	399 Million
Total		2,859,651	$	37.75		2,859,651

(a)	This amount represents the weighted average price paid per share and includes a per-share commission paid for all repurchases.
(b)	The approximate maximum dollar value of shares that may yet be purchased under the program is not necessarily an indication of the amount we intend to repurchase during the remainder of the year.
(c)	The amounts reported include 202,673 shares repurchased for an aggregate of approximately $8 million that were initiated in June, but settled in cash in July.

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Item 6.   Exhibits.

Exhibit No.				Description
	3	.2	—	Amended and Restated By-laws of Waste Management, Inc. [incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed June 24, 2011].
	10	.1	—	$2 Billion Amended and Restated Revolving Credit Agreement dated as of May 9, 2011 by and among Waste Management, Inc. and Waste Management Holdings, Inc. and certain banks party thereto, Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A. and Barclays Capital, as Syndication Agents, Deutsche Bank Securities Inc. and The Royal Bank of Scotland PLC, as Documentation Agents, BNP Paribas and Citibank, N.A., as Co-Documentation Agents and Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, and Barclays Capital, as Joint Lead Arrangers and Book Managers.
	10	.2	—	Resignation Agreement by and between the Company and Michael Jay Romans dated June 14, 2011.
	31	.1	—	Certification Pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934, as amended, of David P. Steiner, President and Chief Executive Officer.
	31	.2	—	Certification Pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934, as amended, of Robert G. Simpson, Senior Vice President and Chief Financial Officer.
	32	.1	—	Certification Pursuant to 18 U.S.C. §1350 of David P. Steiner, President and Chief Executive Officer.
	32	.2	—	Certification Pursuant to 18 U.S.C. §1350 of Robert G. Simpson, Senior Vice President and Chief Financial Officer.
	101	.INS	—	XBRL Instance Document.
	101	.SCH	—	XBRL Taxonomy Extension Schema Document.
	101	.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document.
	101	.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document.
	101	.LAB	—	XBRL Taxonomy Extension Labels Linkbase Document.
	101	.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WASTE MANAGEMENT, INC.

By:  /s/  ROBERT G. SIMPSON

Robert G. Simpson

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer)

WASTE MANAGEMENT, INC.

By:  /s/  GREG A. ROBERTSON

Greg A. Robertson

Vice President and

Chief Accounting Officer

(Principal Accounting Officer)

Date: July 28, 2011

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