Waste Management 2007 Annual Report Download - page 59

Our free cash flow increased in 2007 due to lower capital spending and increased proceeds from divestitures,
the effects of which were partially offset by lower net cash provided by operating activities. Our capital
expenditures were less in 2007 than 2006 largely due to relatively high levels of fleet capital spending in 2006
to prepare for significant mandated changes in heavy-duty truck engines that began in January 2007. The increase in
proceeds from divestitures was a result of our continued fix-or-seek exit initiative. We calculate free cash flow as
shown in the table below (in millions):
2007 2006
Years Ended
December 31,
Net cash provided by operating activities ............................. $2,439 $ 2,540
Capital expenditures ............................................. (1,211) (1,329)
Proceeds from divestitures of businesses (net of cash divested) and other sales
of assets .................................................... 278 240
Free cash flow(a) ............................................... $1,506 $ 1,451
(a) We have included free cash flow, which is a non-GAAP measure of liquidity, in our disclosures because we use
this measure in the evaluation and management of our business and believe it is indicative of our ability to pay
our quarterly dividends, repurchase our common stock and fund acquisitions and other investments. Free cash
flow is not intended to replace the GAAP measure of “Net cash provided by operating activities,” which is the
most comparable GAAP measure. However, by subtracting cash used for capital expenditures and adding the
cash proceeds from divestitures and other asset sales, we believe free cash flow gives investors greater insight
into our liquidity.
We expect that in 2008 we may continue to face challenges related to volume losses as a result of general
economic conditions and pricing competition. However, we are redirecting some of the focus in our sales
department from the right-pricing of existing customers, which has largely been completed, to seeking out new
customers that will provide profitable growth to our business. Throughout 2007, we continued to focus on building a
trusted brand that stands for quality, reliable service, safety and environmental protection. We plan to cultivate this
reputation; focus on quality customer service; actively manage our capital requirements and scheduled debt
repayments; and grow our business with targeted acquisitions and other investments that will improve our current
operations’ performance and enhance and expand our services. We believe all of these measures will ensure our
ability to return value to our shareholders.
Technology Update — For the last several years, we have been introducing systems and technologies to
improve our business processes and profitability. We recently have successfully deployed our FastLane system, an
enterprise-wide, automated point-of-sale system for management of scale house ticketing and our Compass system,
a fleet maintenance system that automates many shop functions and tracks repairs. We also are proceeding with
pilots of onboard computer systems for our fleet collection operations and modules for our pricing program. As part
of our focus on technology, in October 2005, we entered into agreements with a major software vendor to license its
waste and recycling revenue management application and have the vendor implement the licensed software
throughout the Company on a fixed price basis. In January 2007, we began a pilot test of the licensed application in
one of our smaller market areas, while the rest of our market areas continued to operate using our existing revenue
management system. The results of the pilot demonstrated to us that the licensed application would not work. In the
fourth quarter of 2007, we terminated the pilot and the pilot market area’s operations are being returned to our
existing revenue management system. Although we have continued to press the vendor to provide a revenue
management application that fulfills its obligations to the Company, our negotiations have not yet resulted in a
satisfactory commitment from the vendor. In March 2008, in an effort to avoid litigation, we will mediate and
attempt to resolve our disputes with the vendor. Therefore, we will not be able to deploy a new revenue management
system in the foreseeable future and we will continue to run our current system, although it does not provide the
benefits we were expecting to get from the licensed application. However, we may be able to make enhancements to
our current system. Our plans to install a new revenue management system, to make enhancements to our current
system and to address the issues with the software vendor may result in cost increases, each of which could
negatively affect our future cash flow and earnings.
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