Waste Management 2006 Annual Report Download - page 71

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 telecommunications,
advertising, travel and entertainment, rentals, postage and printing.
The following table summarizes the major components of our selling, general and administrative costs for the
years ended December 31 (in millions):
2006
Period-to-
Period Change 2005
Period-to-
Period Change 2004
Labor and related benefits ................ $ 794 $ 37 4.9% $ 757 $ 16 2.2% $ 741
Professional fees ....................... 161 9 5.9 152 (17) (10.1) 169
Provision for bad debts . ................. 49 (3) (5.8) 52 4 8.3 48
Other ................................ 384 69 21.9 315 6 1.9 309
$1,388 $112 8.8% $1,276 $ 9 0.7% $1,267
Our professional fees and, to a lesser extent, our labor costs and other general and administrative costs, for the
year ended December 31, 2006 were increased by $20 million for non-capitalizable costs incurred to support the
planned implementation of our new revenue management system. This increase and other significant changes in our
selling, general and administrative expenses are summarized below.
Labor and related benefits — In both 2006 and 2005, these costs increased year-over-year due to higher bonus
expense attributable to the overall improvement in our performance and higher non-cash compensation costs
associated with the equity-based compensation provided for by our long-term incentive plan. Also contributing to
the increase in labor costs in 2006 and 2005 are higher salaries and hourly wages driven by annual merit raises and
an increase in the size of our sales force. These increases were partially offset by savings associated with our 2005
restructuring. Fluctuations in our use of contract labor for corporate support functions caused an increase in 2006
and a decline in 2005 as compared with the prior year periods.
Professional Fees — In 2006, our professional fees were higher than in 2005 due to higher consulting fees
associated with our pricing initiatives and the development of our revenue management system. However, the
overall increase in consulting fees in 2006 was partially offset by costs incurred during 2005 for computer support
costs related to a revenue management project for our Recycling Group. In 2005, we experienced a decline in
professional fees as compared with the prior year as a result of lower litigation and defense costs and lower
consulting costs associated with Section 404 of the Sarbanes-Oxley Act as we moved from the implementation
phase in 2004 to continued monitoring and testing in 2005.
Other — We are currently undergoing unclaimed property audits, which are being conducted by various state
authorities. The property subject to review in this audit process generally includes unclaimed wages, vendor
payments and customer refunds. During 2006, we submitted unclaimed property filings with all states. As a result of
our findings, we determined that we had unrecorded obligations associated with unclaimed property for escheatable
items for various periods between 1980 and 2004. The increase in our expenses includes a $20 million charge to
record these estimated unrecorded obligations. Refer to Note 10 of our Consolidated Financial Statements for
additional information related to the nature of this charge. Additionally, in both 2006 and 2005, our other costs
increased due to higher sales and marketing costs associated with our national advertising campaign and higher
travel and entertainment costs due partially to the development of our revenue management system and our efforts
to implement various initiatives.
Depreciation and Amortization
Depreciation and amortization includes (i) depreciation of property and equipment, including assets recorded
due to capital leases, on a straight-line basis from three to 50 years; (ii) amortization of landfill costs, including
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