Waste Management 2007 Annual Report Download - page 58

(a) For more information regarding this financial data, see the Management’s Discussion and Analysis of Financial
Condition and Results of Operations section included in this report. For disclosures associated with the impact
of the adoption of new accounting pronouncements and changes in our accounting policies on the comparability
of this information, see Note 2 of the Consolidated Financial Statements.
(b) In the first quarter of 2003, we recorded $101 million, including tax benefit, or $0.17 per diluted share, as a
charge to cumulative effect of changes in accounting principles for the adoption of Statement of Financial
Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations. Substantially all of this
charge was related to changes in accounting for landfill final capping, closure and post-closure costs. Effective
January 1, 2003, we also changed our accounting for repairs and maintenance and loss contracts, which resulted
in a credit to cumulative effect of changes in accounting principles of $55 million, net of taxes, or $0.09 per
diluted share. On December 31, 2003, we began consolidating two limited liability companies from which we
lease three waste-to-energy facilities as a result of our implementation of Financial Accounting Standards
Board (“FASB”) Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised December
2003) — an Interpretation of ARB No. 51. Upon consolidating these entities, we recorded a charge to
cumulative effect of changes in accounting principles of $43 million, including tax benefit, or $0.07 per
diluted share.
(c) Effective January 1, 2004, we began recording all mandatory fees and taxes that create direct obligations for us
as operating expenses and recording revenue when the fees and taxes are billed to our customers. In prior years,
certain of these costs had been treated as pass-through costs for financial reporting purposes. In 2004, we
conformed the 2003 presentation of our revenues and expenses with this presentation by increasing both our
revenue and our operating expense by $74 million for the year ended December 31, 2003.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This section includes a discussion of our operations for the three years ended December 31, 2007. This
discussion may contain forward-looking statements that anticipate results based on management’s plans that are
subject to uncertainty. We discuss in more detail various factors that could cause actual results to differ from
expectations in Item 1A, Risk Factors. The following discussion should be read in light of that disclosure and
together with the Consolidated Financial Statements and the notes to the Consolidated Financial Statements.
Overview
Our pricing program, cost control measures and fix-or-seek exit initiatives continued to provide earnings
growth, margin expansion, and strong free cash flow in 2007. Despite volume losses resulting from pricing
competition and an economic softening, particularly in the residential construction sector, our 2007 operating
results were strong.
We improved our income from operations in 2007 by $225 million, or 11%, as compared with 2006. In
addition, income from operations as a percentage of revenue increased by 1.7 percentage points in 2007 as
compared with 2006. This earnings growth and margin expansion is a reflection of our continued focus on
improving our cost structure and pricing each customer to provide profitable returns, as well as significant returns
provided by our recycling operations in 2007, largely due to a very strong market for recycling commodities.
Our revenues in 2007 decreased by $53 million, or 0.4%, as compared with 2006, primarily as a result of
volume declines and divestitures, offset largely by increased yield from base business and higher recycling
commodity prices. The loss of revenue due to volume declines in 2007 has resulted primarily from pricing
competition and a significant slowdown in residential construction across the United States.
In 2007, we decreased our operating expenses despite incurring $35 million in operating costs during the year
for labor disputes in Oakland and Los Angeles, California. In 2007, operating expenses decreased by $185 million,
or 2.2%, and as a percentage of revenue, declined by 1.2 percentage points as compared with 2006. Our selling,
general and administrative expenses increased by $44 million, or 3.2%, as compared with 2006, primarily a result of
higher costs associated with the implementation and execution of our strategic initiatives that we believe will
improve operations and processes over the long-term.
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