Waste Management 2006 Annual Report Download - page 57

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(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 (“SFAS No. 143”).
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 Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised
December 2003) — an Interpretation of ARB No. 51 (“FIN 46(R)”). 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 and 2002 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 and by
$69 million for the year ended December 31, 2002.
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, 2006. 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
Significant financial achievements during the year ended December 31, 2006 include:
• Net cash provided by operating activities increased to $2.54 billion and free cash flow increased to
$1.45 billion, increases of 6.2% and 3.3%, respectively, when compared with 2005;
• Internal revenue growth of 2.7% in 2006, driven by the 3.6% increase in yield on base business, which is the
highest base business yield increase we have had in at least six years;
• Improvement in our operating expenses as a percentage of revenue, which decreased by 1.7 percentage
points from 66.0% of revenue in 2005 to 64.3% of revenue in 2006; and
• Nearly $1.1 billion in share repurchases and $476 million in dividends paid pursuant to our capital allocation
plan.
Free Cash Flow — Free cash flow is a non-GAAP measure of financial performance that we include in our
disclosures because we believe the production of free cash flow is an important measure of our liquidity and
performance and because we believe our investors are interested in the cash we produce from non-financing
activities that is available for acquisitions, share repurchases, scheduled debt repayments and the payment of
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