Waste Management 2008 Annual Report Download - page 66
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Please find page 66 of the 2008 Waste Management annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.The following table summarizes the major components of our operating expenses, including the impact of
foreign currency translation, for the years ended December 31 (dollars in millions):
2008
Period-to-
Period Change 2007
Period-to-
Period Change 2006
Labor and related benefits .............. $2,420 $ 8 0.3% $2,412 $ (67) (2.7)% $2,479
Transfer and disposal costs.............. 1,048 (100) (8.7) 1,148 (100) (8.0) 1,248
Maintenance and repairs ............... 1,074 (5) (0.5) 1,079 (58) (5.1) 1,137
Subcontractor costs ................... 901 (1) (0.1) 902 (69) (7.1) 971
Cost of goods sold .................... 812 43 5.6 769 180 30.6 589
Fuel . . . ........................... 715 134 23.1 581 2 0.3 579
Disposal and franchise fees and taxes ...... 608 6 1.0 602 (39) (6.1) 641
Landfill operating costs ................ 291 30 11.5 261 23 9.7 238
Risk management .................... 209 (8) (3.7) 217 (74) (25.4) 291
Other . . ........................... 388 (43) (10.0) 431 17 4.1 414
$8,466 $ 64 0.8% $8,402 $(185) (2.2)% $8,587
The changes in our operating expenses for 2008 and 2007 compared with the prior years can largely be
attributed to the following:
•Volume declines and divestitures — In both 2008 and 2007, we experienced volume declines as a result of
(i) the weakening economy; (ii) our focus on our pricing program and shedding unprofitable business; and
(iii) divestitures. We continue to manage our fixed costs and reduce our variable costs as we experience
volume declines, and have achieved significant cost savings as a result. These cost decreases have benefited
each of the operating cost categories identified in the table above.
•Acquisitions and growth initiatives — During 2008, a significant portion of the cost savings derived from
divestitures was offset by cost increases attributed to recently acquired businesses and, to a lesser extent,
other growth initiatives.
•Fuel price increases — In each year, increased fuel costs have increased our operating expenses and
negatively affected our operating margins. Diesel fuel prices varied significantly in 2008, reaching a record-
high price of $4.76 per gallon in July and falling to a three-year low of $2.33 per gallon by the end of the year.
On average, diesel fuel prices increased 32% from $2.88 per gallon in 2007 to $3.81 per gallon in 2008. For
2007, we experienced an average increase of $0.18 per gallon as compared with 2006, or almost 7%. Higher
fuel costs caused increases in both our direct fuel costs and our subcontractor costs throughout 2008 and
2007. As disclosed in the Operating Revenues section above, we have a fuel surcharge program that is
designed to recover our increased fuel costs. Although our fuel surcharge program is designed to respond to
changes in the market price for fuel, there is an administrative delay between the time our fuel costs change
and when we are able to make the corresponding change in our fuel surcharges. This delay negatively
affected our ability to fully recover our cost increases in the first six months of 2008 as the increases in our
fuel surcharges consistently lagged the sharp increases in fuel costs throughout the first half of the year.
However, the cost of fuel declined during the last half of 2008, allowing us to fully recover the fuel costs
increase we incurred during the year.
•Commodities markets — Market prices for recyclable commodities increased significantly from 2006 to
2007 and also continued to climb through most of 2008, resulting in higher costs of goods sold in both
periods. However, during the fourth quarter of 2008, the market prices and demand for recyclable
commodities declined sharply. The significant decrease in market prices during the fourth quarter of
2008 and significant decreases in our brokerage and recycling facility volumes during much of 2008
partially offset the effect of higher commodity prices on our cost of goods sold during the first three quarters
of 2008.
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