Waste Management 2007 Annual Report Download - page 144

(g) Throughout 2007, we reached audit settlements on various federal and state matters that resulted in the effective
settlement of previously unrecognized tax benefits. These settlements reduced income tax expense by
$16 million in the first quarter, $11 million in the second quarter, $3 million in the third quarter and $10 million
in the fourth quarter. Refer to Note 8 for additional information.
(h) During the second quarter of 2007, we recognized a $3 million tax benefit related to scheduled tax rate
reductions in Canada and an $8 million tax benefit related to the expected utilization of state net operating loss
carryforwards and state tax credits. During the fourth quarter of 2007, we recognized a $27 million tax benefit
related to scheduled tax rate reductions in Canada and a $1 million tax benefit related to the expected utilization
of state net operating loss carryforwards and state tax credits. These adjustments were the result of the
revaluation of our deferred tax balances.
(i) As discussed in Note 8, the Company qualifies for Section 45K tax credits as a result of methane gas projects at
its landfills and its investments in two coal-based synthetic fuel production facilities. The credits are phased-out
if the price of crude oil exceeds an annual average price threshold as determined by the U.S. Internal Revenue
Service. On a quarterly basis, we develop our estimate of the phase-out of credits using market information for
crude oil prices. The impact of any revision in our estimates is reflected in both “Equity in net losses of
unconsolidated entities” and “Provision for (benefit from) income taxes” for the quarter.
(j) In the first and second quarters of 2006, net gains on divestitures increased our income from operations by
$2 million and $27 million, respectively. In the second half of 2006, our income from operations was
unfavorably affected by charges for impairments of assets and businesses associated with our ongoing
operations and the resolution of a legal matter related to the termination of a joint venture relationship in
2000. These items, net of gains on divestitures, negatively affected our income from operations by $19 million
during the third quarter of 2006 and $35 million during the fourth quarter of 2006.
(k) Our “Selling, general and administrative” expenses for the first and fourth quarters of 2006 include charges of
$19 million and $1 million, respectively, for unrecorded obligations associated with unclaimed property. We
also recognized $1 million of estimated associated interest obligations during the first quarter of 2006, which
has been included in “Interest expense.” Refer to Note 10 for additional information.
(l) When excluding the effect of interest income, the settlement of various federal and state tax audit matters during
the first, second, third and fourth quarters of 2006 resulted in reductions in income tax expense of $6 million
($0.01 per diluted share), $128 million ($0.23 per diluted share), $7 million ($0.01 per diluted share) and
$8 million ($0.01 per diluted share), respectively. During 2006, our net income also increased due to interest
income related to these settlements.
(m) During the second quarter of 2006, both the Canadian federal government and several provinces enacted tax
rate reductions. SFAS No. 109, Accounting for Income Taxes, requires that deferred tax balances be revalued to
reflect these tax rate changes. The revaluation resulted in a $20 million tax benefit for the second quarter of
2006.
Basic and diluted earnings per common share for each of the quarters presented above is based on the
respective weighted average number of common and dilutive potential common shares outstanding for each quarter
and the sum of the quarters may not necessarily be equal to the full year basic and diluted earnings per common
share amounts.
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)