Waste Management 2006 Annual Report Download - page 105

recorded a $6 million reduction in “Operating” expenses during the first quarter of 2006 and a corresponding
decrease in environmental remediation liabilities. For remedial liabilities that have been discounted, we include
interest accretion, based on the effective interest method, in “Operating” costs and expenses in our Consolidated
Statements of Operations. The portion of our recorded environmental remediation liabilities that has never been
subject to inflation or discounting as the amounts and timing of payments are not readily determinable was
$55 million and $57 million at December 31, 2006 and 2005, respectively. Had we not discounted any portion of our
environmental remediation liability, the amount recorded would have been increased by $41 million at
December 31, 2006 and $36 million at December 31, 2005.
Property and equipment (Exclusive of landfills discussed above)
Property and equipment are recorded at cost. Expenditures for major additions and improvements are
capitalized. Depreciation is provided over the estimated useful lives of these assets using the straight-line method.
We assume no salvage value for our depreciable property and equipment. The estimated useful lives for significant
property and equipment categories are as follows (in years):
Useful Lives
Vehicles — excluding rail haul cars ........................................ 3to10
Vehicles — rail haul cars ............................................... 10to20
Machinery and equipment ............................................... 3to30
Buildings and improvements — excluding waste-to-energy facilities ................ 5to40
Waste-to-energy facilities and related equipment .............................. upto50
Furniture, fixtures and office equipment .................................... 3to10
We include capitalized costs associated with developing or obtaining internal-use software within furniture,
fixtures and office equipment. These costs include external direct costs of materials and services used in developing
or obtaining the software and payroll and payroll-related costs for employees directly associated with the software
development project. As of December 31, 2006, capitalized costs for software placed in service, net of accumulated
depreciation, were $68 million. In addition, our furniture, fixtures and office equipment as of December 31, 2006
includes $62 million for costs incurred for software under development.
When property and equipment are retired, sold or otherwise disposed of, the cost and accumulated depre-
ciation are removed from our accounts and any resulting gain or loss is included in results of operations as offsets or
increases to operating expense for the period.
Leases
We lease property and equipment in the ordinary course of our business. Our most significant lease obligations
are for property and equipment specific to our industry, including real property operated as a landfill, transfer station
or waste-to-energy facility and equipment such as compactors. Our leases have varying terms. Some may include
renewal or purchase options, escalation clauses, restrictions, penalties or other obligations that we consider in
determining minimum lease payments. The leases are classified as either operating leases or capital leases, as
appropriate.
Operating leases — The majority of our leases are operating leases. This classification generally can be
attributed to either (i) relatively low fixed minimum lease payments as a result of real property lease obligations that
vary based on the volume of waste we receive or process or (ii) minimum lease terms that are much shorter than the
assets’ economic useful lives. Management expects that in the normal course of business our operating leases will
be renewed, replaced by other leases, or replaced with fixed asset expenditures. Our rent expense during each of the
last three years and our future minimum operating lease payments for each of the next five years, for which we are
contractually obligated as of December 31, 2006, are disclosed in Note 10.
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)