Waste Management 2006 Annual Report Download - page 86

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We have contingencies that are not considered reasonably likely. As a result, the impact of these contingencies
have not been included in the above table. See Note 10 to the Consolidated Financial Statements for further
discussion of these contingencies.
Off-Balance Sheet Arrangements
We are party to guarantee arrangements with unconsolidated entities as discussed in the Guarantees section of
Note 10 to the Consolidated Financial Statements. Our third-party guarantee arrangements are generally established
to support our financial assurance needs and landfill operations. These arrangements have not materially affected
our financial position, results of operations or liquidity during the year ended December 31, 2006 nor are they
expected to have a material impact on our future financial position, results of operations or liquidity.
Seasonal Trends and Inflation
Our operating revenues tend to be somewhat higher in the summer months, primarily due to the higher volume
of construction and demolition waste. The volumes of industrial and residential waste in certain regions where we
operate also tend to increase during the summer months. Our second and third quarter revenues and results of
operations typically reflect these seasonal trends. Additionally, certain destructive weather conditions that tend to
occur during the second half of the year, such as the hurricanes experienced in 2004 and 2005, can actually increase
our revenues in the areas affected. However, for several reasons, including significant start-up costs, such revenue
often generates comparatively lower margins. Certain weather conditions may result in the temporary suspension of
our operations, which can significantly affect the operating results of the affected regions. The operating results of
our first quarter also often reflect higher repair and maintenance expenses because we rely on the slower winter
months, when electrical demand is generally lower, to perform scheduled maintenance at our waste-to-energy
facilities.
While inflationary increases in costs, including the cost of fuel, have affected our operating margins in recent
periods, we believe that inflation generally has not had, and in the near future is not expected to have, any material
adverse effect on our results of operations. However, management’s estimates associated with inflation have had,
and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.
New Accounting Pronouncements
FIN 48 — Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (an
interpretation of FASB Statement No. 109) (“FIN 48”), which clarifies the relevant criteria and approach for the
recognition, de-recognition and measurement of uncertain tax positions. FIN 48 will be effective for the Company
beginning January 1, 2007. We do not expect the adoption of FIN 48 to have a material impact on our Consolidated
Financial Statements.
SFAS No. 157 — Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), which
defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS No. 157 will be effective for the Company beginning January 1, 2008. We are currently in the
process of assessing the provisions of SFAS No. 157 and determining how this framework for measuring fair value
will affect our current accounting policies and procedures and our financial statements. We have not determined
whether the adoption of SFAS No. 157 will have a material impact on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
In the normal course of business, we are exposed to market risks, including changes in interest rates, Canadian
currency rates and certain commodity prices. From time to time, we use derivatives to manage some portion of these
risks. Our derivatives are agreements with independent counterparties that provide for payments based on a notional
amount, with no multipliers or leverage. As of December 31, 2006, all of our derivative transactions were related to
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