Waste Management 2006 Annual Report Download - page 99

entity, we concluded that we are no longer the primary beneficiary of this entity. Accordingly, in April 2006, we
deconsolidated the entity. The deconsolidation of this entity did not materially impact our Consolidated Financial
Statements for the periods presented.
See Note 19 for further discussion of variable interest entities.
Reclassifications
As a result of the increase in the significance of the impact of equity-based compensation on our financial
statements, we have elected to separately identify the effects of these transactions within our Consolidated
Statements of Stockholders’ Equity. We have made reclassifications in our Statements of Stockholders’ Equity to
conform prior year information with our current period presentation. The supplementary financial information
included in this section has also been updated to reflect these changes. Certain other minor reclassifications have
also been made to our prior period consolidated financial information in order to conform to the current year
presentation.
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.
Cash and cash equivalents
Cash and cash equivalents consist primarily of cash on deposit, certificates of deposit, money market accounts,
and investment grade commercial paper purchased with original maturities of three months or less.
Short-term investments available for use
We invest in auction rate securities and variable rate demand notes, which are debt instruments with long-term
scheduled maturities and periodic interest rate reset dates. The interest rate reset mechanism for these instruments
results in a periodic marketing of the underlying securities through an auction process. Due to the liquidity provided
by the interest rate reset mechanism and the short-term nature of our investment in these securities, they have been
classified as current assets in our Consolidated Balance Sheets. As of December 31, 2006 and 2005, $184 million
and $300 million of investments in auction rate securities and variable rate demand notes have been included as a
component of current “Other assets.” Gross purchases and sales of these investments are presented within “Cash
flows from investing activities” in our Statements of Cash Flows.
65
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)