Waste Management 2007 Annual Report Download - page 48

The waste industry is highly competitive, and if we cannot successfully compete in the marketplace, our
business, financial condition and operating results may be materially adversely affected.
We encounter intense competition from governmental, quasi-governmental and private sources in all aspects
of our operations. In North America, the industry consists of large national waste management companies, and local
and regional companies of varying sizes and financial resources. We compete with these companies as well as with
counties and municipalities that maintain their own waste collection and disposal operations. These counties and
municipalities may have financial competitive advantages because tax revenues are available to them and tax-
exempt financing is more readily available to them. Also, such governmental units may attempt to impose flow
control or other restrictions that would give them a competitive advantage.
In addition, competitors may reduce their prices to expand sales volume or to win competitively bid contracts.
When this happens, we may rollback prices or offer lower pricing to attract or retain our customers, resulting in a
negative impact to our revenue growth from yield on base business.
If we do not successfully manage our costs, our income from operations could be lower than expected.
In recent years, we have implemented several profit improvement initiatives aimed at lowering our costs and
enhancing our revenues, and we continue to seek ways to reduce our selling, general and administrative and
operating expenses. While generally we have been successful in managing our costs, including subcontractor costs
and the effect of fuel price increases, our initiatives may not be sufficient. Even as our revenues increase, if we are
unable to control variable costs or increases to our fixed costs in the future, we will be unable to maintain or expand
our margins.
We cannot guarantee that we will be able to successfully implement our plans and strategies to improve
margins and increase our income from operations.
We have announced several programs and strategies that we have implemented or planned to improve our
margins and operating results. For example, except when prohibited by contract, we have implemented price
increases and environmental fees, and we continue our fuel surcharge programs, all of which have increased our
internal revenue growth. The loss of volumes as a result of price increases may negatively affect our cash flows or
results of operations. Additionally, we continue to seek to divest under-performing and non-strategic assets if we
cannot improve their profitability. We may not be able to successfully negotiate the divestiture of under-performing
and non-strategic operations, which could result in asset impairments or the continued operation of low-margin
businesses. If we are not able to fully implement our plans for any reason, many of which are out of our control, we
may not see the expected improvements in our income from operations or our operating margins.
The seasonal nature of our business and changes in general and local economic conditions cause our
quarterly results to fluctuate, and prior performance is not necessarily indicative of our future results.
Our operating revenues tend to be somewhat higher in summer months, primarily due to the higher volume of
construction and demolition waste. The volumes of industrial and residential waste in certain regions where we
operate also tend to increase during the summer months. Our second and third quarter revenues and results of
operations typically reflect these seasonal trends. Additionally, certain destructive weather conditions that tend to
occur during the second half of the year, such as the hurricanes experienced during 2004 and 2005, actually increase
our revenues in the areas affected. However, for several reasons, including significant start-up costs, such revenue
often generates comparatively lower margins. Certain weather conditions may result in the temporary suspension of
our operations, which can significantly affect the operating results of the affected regions. The operating results of
our first quarter also often reflect higher repair and maintenance expenses because we rely on the slower winter
months, when waste flows are generally lower, to perform scheduled maintenance at our waste-to-energy facilities.
Our business is affected by changes in national and general economic factors that are also outside of our
control, including interest rates and consumer confidence. We have $2.9 billion of debt as of December 31, 2007
that is exposed to changes in market interest rates because of the combined impact of our variable rate tax-exempt
bonds and our interest rate swap agreements. Therefore, any increase in interest rates can significantly increase our
expenses. Additionally, although our services are of an essential nature, a weak economy generally results in
decreases in volumes of waste generated, which decreases our revenues. We also face risks related to other adverse
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