Waste Management 2007 Annual Report Download - page 69

Other operating expenses — In the third and fourth quarters of 2007, we incurred a significant increase in
“Other” expenses due in large part to costs incurred for labor disputes with the Teamsters Local 70 in Oakland,
California that was resolved in July 2007 and with Teamsters Local 396 in Los Angeles that was resolved in October
2007. These labor disputes negatively affected the “Income from operations” of our Western Group by $37 million,
including $33 million of additional “Other” operating expenses, for the year ended December 31, 2007. The
increased operating costs were primarily related to security and the deployment and lodging costs incurred for the
Company’s replacement workers who were brought to California from across the organization. For the year ended
December 31, 2006, our Eastern Group incurred $14 million for similar costs, which were primarily for a labor
strike in the New York City area.
Also affecting the comparability of our “Other” operating expenses for 2007 as compared with 2006 were
(i) $21 million of lease termination costs incurred during the first quarter of 2007 associated with the purchase of
one of our independent power production plants that had previously been operated through a lease agreement;
(ii) lower lease and rental expenses in 2007; and (iii) an increase in gains recognized on the sales of assets for 2007.
The lower costs in 2006 as compared with 2005 can be attributed to (i) Hurricane Katrina related support costs
in 2005, particularly in Louisiana, where we built Camp Waste Management to house and feed employees who
worked in the New Orleans area to help with the cleanup efforts; (ii) comparatively higher rental expense in 2005;
and (iii) a decrease related to the deconsolidation of a variable interest entity in early 2006.
Selling, General and Administrative
Our selling, general and administrative expenses consist of (i) labor costs, which include salaries, bonuses,
related insurance and benefits, contract labor, payroll taxes and equity-based compensation; (ii) professional fees,
which include fees for consulting, legal, audit and tax services; (iii) provision for bad debts, which includes
allowances for uncollectible customer accounts and collection fees; and (iv) other general and administrative
expenses, which include, among other costs, facility-related expenses, voice and data telecommunication, adver-
tising, travel and entertainment, rentals, postage and printing. In addition, the financial impacts of litigation
settlements generally are included in our “other” selling, general and administrative expenses.
The following table summarizes the major components of our selling, general and administrative costs for the
years ended December 31 (in millions):
2007
Period-to-
Period Change 2006
Period-to-
Period Change 2005
Labor and related benefits ................. $ 835 $41 5.2% $ 794 $ 37 4.9% $ 757
Professional fees ........................ 160 (1) (0.6) 161 9 5.9 152
Provision for bad debts ................... 49 — — 49 (3) (5.8) 52
Other ................................ 388 4 1.0 384 69 21.9 315
$1,432 $44 3.2% $1,388 $112 8.8% $1,276
Our labor and related benefits, professional fees and other general and administrative costs for the year ended
December 31, 2007 increased by $24 million as a result of non-capitalizable costs associated with investments in
our information technology and our people strategies. Other significant changes in our selling, general and
administrative expenses are summarized below.
Labor and related benefits — In both 2007 and 2006, these costs increased year-over-year due to higher
compensation costs driven by an increase in the size of our sales force; increased investments in our information
technology and people strategies, as noted above; higher non-cash compensation expense associated with the
equity-based compensation provided for by our long-term incentive plan; and annual merit raises. The higher labor
costs for our pricing, people and other initiatives are necessary as we implement new ways to grow our business and
strengthen our ongoing operations. Our bonus expenses were relatively higher in 2006 than either 2005 or 2007 due
to the strength of our performance against incentive plan measures in that year. Fluctuations in our use of contract
labor for corporate support functions also caused an increase in 2006 as compared with 2005. These cost increases
in 2006 were partially offset by savings associated with our 2005 restructuring.
Professional Fees — In both 2007 and 2006, our consulting fees increased as a result of our strategic
initiatives. In 2007, this increase was offset by (i) lower consulting costs associated with our pricing initiatives; and
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