Waste Management 2007 Annual Report Download - page 96

As a result of the acceleration of the vesting of stock options and the replacement of future awards of stock
options with other forms of equity awards, the adoption of SFAS No. 123(R) on January 1, 2006 did not significantly
affect our accounting for equity-based compensation or our net income for the years ended December 31, 2007 or
2006. We do not currently expect this change in accounting to significantly impact our future results of operations.
However, we do expect equity-based compensation expense to increase over the next two years because of the
incremental expense that will be recognized each year as additional awards are granted.
Prior to the adoption of SFAS No. 123(R), we included all tax benefits associated with equity-based
compensation as operating cash flows in the Statement of Cash Flows. SFAS No. 123(R) requires any reduction
in taxes payable resulting from tax deductions that exceed the recognized tax benefit associated with compensation
expense (excess tax benefits) to be classified as financing cash flows. We included $26 million and $45 million of
excess tax benefits in our cash flows from financing activities for the years ended December 31, 2007 and 2006,
respectively that would have been classified as an operating cash flow if we had not been required to adopt
SFAS No. 123(R). During the year ended December 31, 2005, excess tax benefits improved our operating cash
flows by approximately $17 million.
Reclassifications
In the first quarter of 2007, we realigned our Eastern, Midwest and Western Group organizations to facilitate
improved business execution. We reassigned responsibility for the management of certain market areas in the
Eastern and Midwest Groups to the Midwest and Western Groups, respectively. In addition, in early 2007 we moved
certain of our WMRA operations to our Western Group to more closely align their recycling operations with the
related collection, transfer and disposal operations. We have reflected the impact of these realignments for all
periods presented to provide financial information that consistently reflects our current approach to managing our
operations. Refer to Note 20 for further discussion about our reportable segments.
3. Summary of Significant Accounting Policies
Principles of consolidation
The accompanying Consolidated Financial Statements include the accounts of WMI, its wholly-owned and
majority-owned subsidiaries and certain variable interest entities for which we have determined that we are the
primary beneficiary. All material intercompany balances and transactions have been eliminated. Investments in
entities in which we do not have a controlling financial interest are accounted for under either the equity method or
cost method of accounting, as appropriate.
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, stockholders’ 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 methodologies. 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 deal with the greatest amount of uncertainty relate to our accounting for landfills,
environmental remediation liabilities, asset impairments, and self-insurance reserves and recoveries. Each of these
items is discussed in additional detail below. Actual results could differ materially from the estimates and
assumptions that we use in the preparation of our financial statements.
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)