Waste Management Company Analysis 1

Waste Management Incorporated Company Analysis Group 10: Amanda Bowling, Aesha Desai, Curtis Anderson, aimin Cho!shi,

Michael "tewart, Bha#i! "hah $ni#ersity o% &orth Ala'ama Management (olicy

Waste Management Company Analysis ) *a'le o% Contents +,ecuti#e "ummary Introduction Company Bac!ground Customers / "er#ices Corporate (ort%olio "egment Growth 2ates (roduction "ales Data 2egional &et "ales 2e#enue &et Income +,penses "toc! (rices Mar!et "hare Current "trategies Corporate Business 6unctional Core Competencies "olid Waste Disposal *rans%er "tations 7and%ills 2ecycling Waste8to8+nergy Gas8to8+nergy Competiti#e +n#ironment Competiti#e (ro%ile 2e#enue &et Income "ales Growth 2e#enue (er +mployee A#erage 9perating Income &et (ro%it Margin 2eturn on In#estment &et Income (er +mployee Conclusion o% Competiti#e Analysis "igni%icant Competitors Allied Waste Industries 2epu'lic "er#ices Competition Core Competencies Allied Waste Collection *rans%er "tations 2ecycling 7and%ills Gas8to8+nergy 11. 1. 10 11 )1 )) )3 )). )4 )5 )0 )0 )0 30 31 3) 3) 33 333. 3. 34 34 35 30 -0 -1 -) -3 --. -4 -5 -0 -0 .1 .1 .1 .1 .1 .) .)

Waste Management Company Analysis 3 2epu'lic "er#ices Collection *rans%er "tations 7and%ills 2ecycling "ummary o% Core Competencies :ey 6actors o% Competition Geographic 7ocation (ricing ;uality o% 9perations Increases in 2ecycling Cost +%%ecti#eness Go#ernmental (ermits Competiti#e "ummary (urpose o% this analysis Corporate (ro%iles Waste Management Inc< Allied Waste Industries, Inc< 2epu'lic "er#ices, Inc< Growth Analysis 2e#enue &et Income Mar!et =alue Analysis +arnings per "hare >+("? (rice to +arnings >(@+? (rice to "ales >(@"? (rice to Boo! >(@B? (rice to Cash 6low >(@C6? "toc! (rice (ro%ita'ility 2atios Gross (ro%it Margin 9perating (ro%it Margin &et (ro%it Margin 2eturn on Assets 2eturn on +Auity 2eturn on Assets *rend Analysis 2ecommendations %or Impro#ement 7iAuidity 2atios Current 2atio ;uic! 2atio 2ecommendations %or Impro#ement 7e#erage 2atios De't to Assets and De't to +Auity Interest Co#erage >*imes Interest +arned? "hort8*erm De't 2ecommendations %or Impro#ement *urno#er 2atios >Asset Management? .) .) .3 .3 .3 .3 .. .. .. .4 .4 .4 .5 .5 .0 .1 40 4) 43 44. 44 41 41 41 50 50 50 5) 53 53 55. 54 55 50 51 0) 03 00. 04 04 05 00 01 10

Waste Management Company Analysis 2ecei#a'les *urno#er 6i,ed Assets *urno#er *otal Assets *urno#er 2ecommendations %or Impro#ement "ol#ency 2atios "ol#ency 2atio 9perating Cash 6low 2ecommendations %or Impro#ement 6inancial Analysis "ummary 2e#enue and "ales Company Growth (ro%it Margins 2eturn on Assets / =elocity Cash Assets Cash 6low Competiti#e Analysis "W9* Analysis "trengths *echnology "trategies Glo'al (osition Mar!et "hare Mar!eting (roducts@"er#ices 7icenses@(ermits Assets 7and%ills *rans%er "tations *ruc!ing 6leet Wea!nesses 7eadership 6inancial Measures / 2eturns "iBe Dealing with "trengths and Wea!nesses 9pportunities 2enewa'le +nergy "ources 2ecycling (rograms / Gas8to8+nergy *hreats (olitical / Go#ernmental 7egal 6orces +conomic Conditions / Complementors Competition Management o% 9pportunities and *hreats Business De%inition +#olution o% the Industry *he 6uture o% Waste Management: &ew 10 1) 1) 13 11. 14 15 10 10) 103 10. 105 100 100 111 11) 11) 11) 11) 113 113 113 113 111111111111. 11. 11. 115 115 1)0 1)0 1)1 1)1 1)1 1)) 1)) 1)3 1)1)0 1)0 1)1

Waste Management Company Analysis . (roducts@"er#ices 6uture Customers MaCor Competitors Allied Waste Industries 2epu'lic "er#ices (ossi'le Mergers / AcAuisitions 9'Cecti#es 2e#enue@"ales usti%ication &et Income usti%ication Mar!et "hare usti%ication Alternati#es Building Materials "olar (anels Windmill +nergy Generation Alternati#e (ros / Cons Building Materials "olar (anels Windmill +nergy Generation 2ecommendations Implementation Considerations "etting $nreasona'le +,pectations +lastic Business De%inition A Cause, &ot a Business &ew =oices 9pen Mar!et %or Capital / *alent 7ow 2is! +,perimentation Cellular Di#ision 2e%erences *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'les 1 Gross "egment 2e#enue ) &et "ales 'y (roduct 3 2egional &et "ales - 2e#enues . &et Income 4 "toc! (rices 5 Competiti#e (ro%ile 0 2e#enue 1 &et Income 10 "ales Growth 2ate 11 2e#enue (er +mployee 1) A#erage 9perating Margin 13 &et (ro%it Margin 1- 2eturn on In#estment

130 130 131 131 13) 133 133 133 131313. 13. 134 130 131 1-0 1-1 1-1 1-) 1-) 1-3 1-. 1-. 1-4 1-4 1-5 1-5 1-0 1-0 1.0 )1 )3 )). ). )5 34 35 30 -0 -1 -) -3 --

Waste Management Company Analysis 4 *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le *a'le 1. 14 15 10 11 )0 )1 )) )3 &et Income (er +mployee Competitor Comparison 9perating 2e#enueD WMI 2e#enue "ourcesD WMI, AW, 2"G 2e#enue E 6our8FearD WMI, AW, 2"G &et IncomeD WMI, AW, 2"G Company 2an!ing E 2e#enue Mar!et =alue Analysis Company 2an!ing E Mar!et =alue "toc! (rices E Gighs and 7ows Gross (ro%it MarginD WMI, AW, 2"G 9perating (ro%it MarginD WMI, AW, 2"G &et (ro%it MarginD WMI, AW, 2"G 2eturn on AssetsD WMI, AW, 2"G 2eturn on +AuityD WMI, AW, 2"G Company 2an!ing E (ro%ita'ility Current 2atioD WMI, AW, 2"G ;uic! 2atioD WMI, AW, 2"G Company 2an!ing E 7iAuidity 2atios De't 2atioD WMI, AW, 2"G De't to +AuityD WMI, AW, 2"G *imes Interest +arnedD WMI, AW, 2"G "hort8*erm De'tD WMI, AW, 2"G Company 2an!ing E 7e#erage 2atios 2ecei#a'les *urno#er 2atioD WMI, AW, 2"G 6i,ed Assets *urno#er 2atioD WMI, AW, 2"G *otal Assets *urno#er 2atioD WMI, AW, 2"G Company 2an!ing E *urno#er 2atios "ol#ency 2atioD WMI, AW, 2"G 9perating Cash 6low 2atioD WMI, AW, 2"G Company 2an!ing E "ol#ency 2atios &et (ro%it Margin &et 9perating Cash 6low &et 6inancing Cash 6low &et In#esting Cash 6low 2eturn on Assets 2eturn on +Auity Company 2an!ed (ro%ita'ility 2atios "trategy@"W9* Matri, Wor!sheet (roCected 2e#enue@"ales (roCected &et Income -. -1 4) 444 40 40 51 5) 53 55. 54 55 50 00 00. 0. 05 05 00 01 01 11 1) 13 11. 14 15 10. 110 110 111 114 114 114 1). 1313.

Analysis *a'le )*a'le ). *a'le )4 *a'le )5 *a'le )0 *a'le )1 *a'le 30 *a'le 31 *a'le 3) *a'le 33 *a'le 3*a'le 3. *a'le 34 *a'le 35 *a'le 30 *a'le 31 *a'le -0 *a'le -1 *a'le -) *a'le -3 *a'le -*a'le -. *a'le -4 *a'le -5 *a'le -0 *a'le -1 *a'le .0 *a'le .1 *a'le .) *a'le .3 *a'le .*a'le ..

6igures

Waste Management Company Analysis 5 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 6igure 1 Company *ime 7ine ) "egment 2e#enue 'y (ercentage 3 Income %rom 9perations - 2e#enue "ources . 9perating +,penses 4 6i#e Fear *otal 2eturn 5 2e#enue 0 &et Income 1 "ales Growth 2ate 10 2e#enue (er +mployee 11 A#erage 9perating Margin 1) &et (ro%it Margin 13 2eturn on In#estment 1- &et Income (er +mployee 1. Industry Mar!et "hare, 14 2e#enue "ourcesD WMI, 15 2e#enue "ourcesD AW, 10 2e#enue "ourcesD 2"G, 11 Waste Management 2e#enue )00-8)005, )0 Waste Management &et Income )00-8)005, )1 *rend Analysis: Waste Management #s< 6i#e 10 )1 )) ))4 )0 30 31 -0 -1 -) -3 -. -4 40 41 43 444 45 51 105 131

year Industry A#erage 6igure )) &et (ro%it Comparison 6igure )3 Industry Mar!et "hare

Waste Management Company Analysis 0

+,ecuti#e "ummary *his paper will discuss the history o% Waste Management Incorporated< *he current strategies, core competencies, industry segments, and maCor competitors o% the company will also 'e discussed< In the competition section, this paper presents a competiti#e pro%ile ta'le, outlining !ey competiti#e measurements o% their maCor competitors, Allied Waste and 2epu'lic "er#ices< In that section, we also discuss current aspects o% the competiti#e en#ironment that are li!ely to a%%ect Waste Management, namely recent merger tal!s 'etween Allied and 2epu'lic< *he ne,t section is the %inancial section< *he %inancial analysis section pro#ides !ey ratios, such as pro%ita'ility, liAuidity, turno#er, le#erage, and sol#ency ratios %or Waste

Waste Management Company Analysis 1 Management and their top two competitors o#er the past %our years< A growth and mar!et #alue analysis is presented, with in%ormation on the corporate pro%ile o% each %irm< A cash %low discussion is also included %or Waste Management< *he ne,t section e,amines and identi%ies the !ey strengths, wea!nesses, opportunities, and threats o% Waste Management< *he strengths and wea!nesses are discussed, along with how Waste Management can le#erage their strengths, and o#ercome their wea!nesses< *he paper also discusses the opportunities and threats, o% the e,ternal en#ironment, and how Waste Management can ta!e ad#antage o% the opportunities and minimiBe the impact o% threats< 6orward8loo!ing data is also included in this analysis< *he paper discusses where we thin! the industry will 'e in ten years 'ased on current trends, %uture customers, competitors, and %uture product o%%erings o% Waste Management< *he o'Cecti#es that we %eel are important to the %uture o% the company are also discussed, along with #ia'le alternati#es %or the %uture industry state< *hese alternati#es are discussed, along with our recommendation and implementation issues< Introduction Company Bac!ground *he company, Waste Management 7td<, was %ounded 'y Dean 7< Buntroc! and his cousin Wayne GuiBenga in 1151 >Goo#erHs, )000?<

Waste Management Company Analysis 10 Buntroc! and C+9 (hillip 2ooney, depended mainly upon acAuisitions to create a massi#e waste8disposal empire >Waste Management Gistory, )000?< *hey acAuired and consolidated many local haulers, including %irms in Canada during the 1150Hs >Goo#erHs, )000?< As the company grew, they 'egan to di#ide into specialty areas 'y %orming Chemical Waste in 115.D +&2AC in 1100, which conducted site clean8upsD and ser#icing nuclear waste clients with Chem8&uclear systems in 110) >Goo#erHs )000?< In 1100 Waste Management entered into a merger agreement with Wheela'rator, allowing WMI a ))I ownership interest< In 1110, Wheela'rator *echnologies 'ecame a su'sidiary o% Waste Management Incorporated >Wheela'rator, )00-?< *he company grew at a phenomenal pace and in 1113 the company 'egan to di#ersi%y< *hey also were renamed WMJ during 1113< Gowe#er, in 1115 they changed their name 'ac! to Waste Management >Goo#erHs, )000?< *hat same year Dean Buntroc!, and C+9 (hillip 2ooney le%t the company >Waste Management, )000?< A%ter going through %our di%%erent C+9Hs o#er a period o% eight months, the company 'rought in turnaround specialist, "te#e Miller, to ta!e on the role o% C+9 >Goo#erHs, )000?< In 1110, the company merged with the Gouston 'ased company, $"A Waste "er#ices, in a deal that was worth around K). 'illion >Waste Management, )000?< *he management team o% $"A Waste too! control o#er the 'usiness, with ohn Drury as C+9< In 1111, the

Waste Management Company Analysis 11 company acAuired +astern +n#ironmental "er#ices %or K1<3 'illion, and shortly a%ter this acAuisition, ohn Drury too!

lea#e due to medical reasons< It was during this time that shareholders %iled an insider trading lawsuit against the %irm< *he acting C+9, 2odney (roto, was %ired due to allegations o% insider trading and was replaced with Maury Myers >Goo#erHs, )000?< In )000, Waste Management mo#ed into a restructuring phase, selling o%% their operations in +urope, Asia, and "outh America< *hey hoped to concentrate on their core 'usiness< Along the same lines, in )00), they 'egan reorganiBing operations 'y reducing their wor!%orce 'y .5,000 employees< During this same time the "+C %iled a lawsuit against si, %ormer Waste Management e,ecuti#es %or %raud >Goo#erHs, )000?< In )003 the %irm %ormed new recycling units and acAuired (elts group, the largest pri#ately held recycling %irm< *hey also went on to acAuire 5. complementary collection 'usiness and di#ested operations >Goo#erHs, )000?< Currently the Gouston 'ased company owns, 3.- collection operations, 3-1 trans%er stations, )55 acti#e land%ill disposal sites, 14 waste8to8energy plants, 10. recycling plants and 100 'ene%icial8use land%ill gas proCects< "uch a di#ersi%ied support structure, allows Waste Management to ser#e the #arious needs o% o#er )1 million

Waste Management Company Analysis 1) customers >Waste Management Gistory, )000?< In 6igure 1 you will see the timeline %or the company<

Waste Management Company Analysis 13 *ime 7ine o% Waste Management Incorporated

1151 WMI +st<< 115. Chemical Waste

110) Chem &uclear

1111 AcAuired +astern 2ecycling 1115 Change &ame Bac! to Waste Management )00) Began 2e8 organiBation

AcAuired (elts Group

1100 1110 +&2AC 1110 AcAuired Merger Wheela'rator with $"A During the Waste 1113 1150Hs made acAuisitions Change name to WMJ

)00) Insider trading allegations )000 "old Asian, "outh American, / +uropean 9perations

6igure 1

Customers and "er#ices

Waste Management ser#ices o#er )0 million municipal, commercial, industrial, and residential customers< 6or their 'igger customers, they also utiliBe their L$pstream GroupM to

Waste Management Company Analysis 1pro#ide a %ull range o% ser#ices and waste strategies< *hey pro#ide waste and energy resource ser#ices to their customers through their 3.- disposal operations, 3-1 trans%er stations, )55 acti#e land%ills, 14 waste8to8energy sites, 10. recycling %acilities, and 100 land%ill gas sites< *hey operate in (uerto 2ico, Canada, and in e#ery state in the $nited "tates e,cept, two< *he %irm continues to pursue the standardiBation o% 'est practices and indi#idual customer pricing initiati#es, to pro#ide customers with 'etter ser#ice< Waste Management has also updated and consolidated ser#ice call centers in an e%%ort to pro#ide representati#es will real8time solutions %or customers< *hey handle around )0 million phone calls a year %or the company< Waste Management continues to stri#e to 'e %irst in the minds o% customers >Waste Management Annual 2eports, )005?< Corporate (ort%olio Waste Management owns a port%olio o% 'usiness %unctions including collection, trans%er, disposal, recycling, waste8to8 energy, and gas8to8energy segments< In the $nited "tates and Internationally, Waste management Inc< supplies incorporated ser#ices< *he company also o%%ers e,tra waste management ser#ices, such as on8site ser#ice, methane gas reco#ery, and third8party su'contracted and administrati#e ser#ices< It ser#ices commercial, industrial, municipal, and residential customers, as well as other waste management companies, electric

Waste Management Company Analysis 1. utilities, and go#ernmental 'odies< It is at present, the 'iggest waste disposal company in &orth America >www<%inance<yahoo<com@ANsOWMI?< *hey di#ide their 'usiness into the %ollowing operating segments: +astern, Midwest, "outhern, Western, Wheela'rator, WM2A and other< During the )005 operating year, these operating groups pro#ided gross re#enue totaling K1.<4 'illion< *a'le 1 compares the indi#idual segment re#enue %or the years )00. through )004 and was pulled %rom the %inancial statements o% Waste Management< As o% )00. the Canadian operationHs re#enues were allocated 'etween the Midwest and +astern Groups< 2e#enue %rom the operations in (uerto 2ico operations is included in the other category >Waste Management Annual 2eport, )005?< During the )005 operating year, su'stantial growth was achie#ed through pricing initiati#es< During )005, Waste Management saw increases in re#enue in the +astern and Western segments, through trans%er station sa#ings< *he "outhern and +astern segments had growth pro#ided 'y municipal solid waste re#enue< *he Western segment had growth %rom special waste re#enue< Gowe#er, all o% these re#enues were o%%set 'y lower waste #olumes< In 6igure ) the re#enue percentages are 'ro!en down into the operating segments >Waste Management Annual 2eport, )005?<

Waste Management Company Analysis 14

*a'le1 Gross "egment 2e#enue >millions? Eastern Midwest Southern Western Wheelabrator WMRA & Other 2007 3)01 )103 3401 3.00 040 1)40 2006 3413003 35.1 3.11 10) 10)3 2005 343) )1)) 3.10 3-14 051 1101

"egment 2e#enue (ercentages +astern Group Midwest Group "outhern Group Western Group Wheel'rator 2ecycling and 9ther

4I

0I

)1I

)3I 11I )3I

Waste Management Company Analysis 15 6igure ) Segment Growth Rates 7oo!ing at gross re#enue, the segment that is growing is the recycling segment< It had a )3I re#enue increase %rom )004 to )005< *he rest o% the segments are actually declining< *his is due to the economic downturn a%%ecting the #olume o% waste< Most o% the increases in the other segments are related to price increases, 'ut were o%%set with the #olume declines< 6igure 3 was ta!en %rom the %inancial statement presentation o% Waste Management Incorporated, and shows the income %rom operations growth o#er the past three years< 9#er the )004 and )005 year the company e,perienced 11I growth in operating income< 9#er the )00. to )004 year the company had 11I growth >Waste Management In#estor (resentation, )005?<

Income %rom 9perations Growth >In Millions?

K),-00 Income %rom 9perations K),0)1 K1,1.0 K1,510

K),).-

K1,.00
)00. )004 )005

6igure 3

Waste Management Company Analysis 10

Product Sales Data In *a'le ) the net sales 'y product are presented %or Waste Management Incorporated< *heir 'iggest re#enue comes %rom their collection ser#ices di#ision< Collection o% waste ma!es up ..I o% the entire net sales, and itsH #alue is K3300 million< 7and%ill ser#ice re#enue ma!es up )0I o% the entire net sales, 'ringing in re#enue o% K1)00 million< *rans%er o% waste ma!es up K440 million, recycling K-00 million, and waste8to8energy K340 million >www<%inance<yahoo<com@ANsOWMI?< *a'le ) &et "ales 'y (roducts Collection !and"ill #rans"er Rec$clin% Waste&to&ener%$ $ 00

K1)00 K440 K-00 K340

&ote: Currency is in Millions Regional Net Sales 2egional net sales are shown in *a'le 3 %or Waste Management< During the )005 operating year the "outhern and Western di#isions 'rought in the most net sales re#enue< *his was in large part due to special waste ser#ice charges in the Western di#ision and the amount o% waste collections in the

Waste Management Company Analysis 11 "outhern di#ision< *his trend can also 'e seen during the )004 and )00. operating years, as well >Waste Management Annual 2eport, )005?<

*a'le 3 2egional &et "ales >millions? Eastern Midwest Southern Western Wheelabrator WMRA & Other Revenue 2007 )4.0 )-11 31-1 304515 1145 2006 )05. )-05 3111 30-4 031 133 2005 )0-0 )-1303)141 015 11)

Revenue S ourcesWaste Management Inc.

$3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Revenue S ources Waste Management Inc.

6igure - 2etrie#ed %rom: Waste Management, Inc< >WMI?

Waste Management Company Analysis )0

*a'le 2e#enue 200 200' 2005 2006 2007 WM( 11,4-0<0 1),.14<0 13,05-<0 13,343<0 13,310<0 www<wastemanagement<com

In *a'le - the re#enue %or Waste Management is shown %or the last %i#e years in millions< As o% Decem'er )005, re#enues at WMI were 13<31BD down <35I %rom )004 >13<34B?< 2e#enue has steadily 'een clim'ing %or the company until )005< *his was in large part due to #olume declines, and will 'e discussed in %urther detail in the %inancial section< A #isual representation the 'rea!down o% re#enues 'y ser#ices is presented in 6igure -< Collection ma!es up the largest portion o% the companyHs re#enue sources, %ollowed 'y land%ills, trans%er stations, recycling, and last waste8to8energy operations< Net Income *a'le . &et Income )003 )00WMI 430<0 131<0 www<wastemanagement<com )00. )004 )005 1,10)<0 1,1-1<0 1,143<0

Waste Management Company Analysis )1 *a'le . shows the net income %or Waste Management %or the past %i#e years in millions< &et income rose at WMI Company during )005 'y K1- million< *his is in large part due to cost sa#ings initiati#es the company has instigated< *his will also 'e discussed in the %inancial section in more detail< Expenses 9perating Costs as a (ercent o% 2e#enue

9perating Costs as a I o% 2e#enue

40I 44I 4-I 4)I 40I )00.

44<0I 4-<3I 43<1I

)004

)005

6igure . 6igure ., which was o'tained %rom the in#estor presentation o% Waste Management, shows the operating costs o#er the past three years as a percent o% re#enue< *he chart depicts the increased cost sa#ings initiati#es Waste Management has put into place to lower operating costs< *hese include an updated mapping system %or truc! routes, impro#ements in sa%ety programs, and a

Waste Management Company Analysis )) reduction in administrati#e sta%% >Waste Management Annual 2eports, )005?<

Stock Prices *a'le 4 "toc! (rices 200 200' WM( )1<400 )1<1-0 www<wastemanagement<com 2005 30<3.0 2006 34<550 2007 3)<450

In the *a'le 4, we can see that the stoc! prices ha#e steadily increased until )005< *his is largely due to the economic downturn, di#estures, and the potential losses associated with decreased waste #olumes< *he ratios that a%%ect stoc! price will 'e discussed in more detail in the %inancial section >Waste Management, )005?< In 6igure 4 the comparison o% cumulati#e %i#e year returns is depicted< 6rom this graph you can see that Waste Management has returns in line with 'oth the Dow ones industry a#erages

and the "/( .00 inde,< *his data was pulled %rom the %inancial statements o% Waste Management >Waste Management Annual 2eport, )005?<

Waste Management Company Analysis )3

Comparison o% Cumulati#e 6i#e Fear *otal 2eturn )00 K 2eturn 1.0 100 .0 0 )00) )003 )00)00. Fear 6igure 4 Market Share As %or mar!et share, Waste Management Inc< holds the 'iggest share with a )0<.I share, Allied Waste controls around 13I o% the mar!et, and 2epu'lic "er#ices has 4<4I o% the mar!et share >"char%, )000?< (ast the point o% these three competitors, there is a highly %ragmented mar!et with many competitors >Goo#erHs, )000?< +ach %irm has similar strategies, 'ut di%%erent %inancial data 'ased on their share o% the mar!et, price structure, and cost sa#ings initiati#es< Current "trategies Corporate Strateg In this part, an analysis o% the present national and international 'usiness stratagems %ollowed at WMI will 'e )004 )005 Dow ones Waste / Disposal "er#ices "/( .00 WMI

Waste Management Company Analysis )studied< Waste ManagementHs corporate strategy is to grow re#enue through pricingD and continue e%%orts to lower operating, selling, general, and administrati#e costs through process standardiBation and producti#ity impro#ements< *hey want to continue to impro#e their 'usiness units through their L%i, or see! e,itM strategy and generate strong and consistent cash %lows %rom operations %or shareholders< Waste Management is also continuing to di#est underper%orming operations >Waste Management Annual 2eport, )005?< *he company continues to grow their 'usiness units and loo! %or synergistic acAuisitions< *hey are concentrating particularly in the areas o% energy generation and recycling< *heir strategy is to ser#ice the waste needs o% customers, 'y pro#iding en#ironmentally %riendly and sustaina'le solutions to satis%y current and %uture customers< Waste Management is dedicated to producing the highest le#el o% client support and ser#ices< *hey also want to achie#e high returns %or shareholders >Waste Management Annual 2eport, )005?< Waste Management is also de#oted to the continual impro#ement o% sa%eguards %or the en#ironment< *hese e%%orts distinguish Waste Management as an ecologically %riendly company that will 'e a'le to continue to meet increased en#ironmental regulations<

Waste Management Company Analysis ).

!usiness Strateg Waste Management adapts its 'usiness to ser#e the uniAue reAuirements o% each o% its consumer clusters< *he %irm has decreased their %ocus on com'inations and attainments, and in there place, the %irm relies on increasing their resources and growing ser#ices< *hrough WMIHs %iscal resources, the company is a'le to construct and attain #alua'le assets that allow them to attain %iscal o'Cecti#es< *hey wor! together with the di%%erent administrations, educational associations, and support departments, o% the geographic regions they conduct 'usiness within, to o'tain access to the most cost e%%icient techniAues o% waste management that are accessi'le< 9ne o% their chie% strategies is to increase in#estor prosperity 'y 'elonging to organiBations in e#ery geographic region that the company conducts 'usiness within< It is their goal to maintain %acilities and community %aith in their continued presence within the geographic regions they compete in< *hey compete among other competitors in the waste industry on price, ser#ices, and a#aila'ility< *hey are currently implementing cost sa#ing programs to reduce the amount o% operating cost passed on to customers< *hey continue to loo! %or ways to impro#e operating e%%iciency and customer ser#ice< *hey recently centraliBed call centers to pro#ide 'etter in%ormation

Waste Management Company Analysis )4 and ser#ice to customers< *hey also ser#ice more geographical regions than their competitors< Waste Management see!s to 'e the %irst in the minds o% customers on waste ser#ices >Waste Management, )005?< "unctional Strateg *he companyHs %unctional strategy is to shi%t to e,tra pro%ita'le procedures, li!e e,panding their en#ironmental operations and cost sa#ings initiati#es< 9ne o% their initiati#es is to %ocus on impro#ing the %uel e%%iciency o% their operating %leet< *hey are planning on e,panding their research and de#elopment o% alternati#e %uel sources, %or #ehicles< *hey are e,pecting to in#est around K.00 million toward increasing the %uel e%%iciency o% their %leet o#er the ne,t ten years< *hey also plan to continue their en#ironmentally %riendly mar!eting campaign, under the L*hin! GreenM slogan >Waste Management, )005?< In the human resource area, Waste Management see!s to impro#e the sa%ety record o% the company< *his will aid them in %inancial strategies to reduce costs and impro#e operating income< *his strategy also promotes employee wel%are< *he company is see!ing to im'ed sa%ety into the e#eryday operations< It is a way o% li%e that is im'edded in the way they wor!, the Cudgments they %ormulate, and the measures they acAuire< WMI aims to accomplish outstanding protection and 'e the sa%est

Waste Management Company Analysis )5 company in the industry< *he strategy is !nown as Mission to Pero >M)P?< *he company plans to support this plan to reduce the amount o% haBardous decisions, dangerous conditions, perilous tools, and unsa%e approaches that employees might ta!e< *he %oundation o% M)P is well documented, and each employee goes through the sa%ety training process< *his program acti#ely enhances employee happiness and superior consumer contentment >Waste Management, )000?< Core Competencies Waste Management specialiBes in handling, collecting, treating, trans%erring, and disposing o% solid and haBardous waste< *he %irm also holds core competencies in the industry segments o% recycling, waste8to8energy, and gas8to8energy generation< All o% these core 'usiness processes deri#e o%% o% the companyHs a'ility to pro#ide e%%ecti#e customer ser#ices< Solid #aste Disposal Waste Management pro#ides solid waste pic!up and disposal< *his waste includes, %ood items, %urniture, newspapers, and so on< In )003, the $" produced more than )34 million tons o% solid waste< *his eAuates to around -<. pounds o% waste per person, per day >Municipal "olid Waste, )000?< Waste Management collects waste %or nearly )0 million residential, commercial, and industrial customers< *hey ha#e an e,tensi#e area they can ser#ice, since they are in all states e,cept two in the $nited

Waste Management Company Analysis )0 "tates< *hey also ha#e the largest %leet o% truc!s to ser#e customers needs >Waste Management Annual 2eport, )005?< *hey pro#ide cur'side ser#ice, and contract terms o% three years %or industrial or commercial accounts< 6or residential ser#ices they contract with municipalities %or one to %i#e years, to pro#ide ser#ices< *hey process the waste down two paths< *hey either haul it directly to the land%ill, or collect it and ta!e it to a trans%er station to 'e compacted< 9nce the waste has 'een compacted it is hauled to the closest land%ill, #ia Waste ManagementHs truc!s or their railcar system >Waste Management, )005?< Waste management also treats haBardous waste< *his !ind o% waste includes haBardous waste items such as, medical and nuclear waste< Waste in this segment is largely generated 'y industrial manu%acturers >GaBardous Waste, )000?< *hey operate se#eral haBardous waste land%ill sites, and meet necessary +(A regulations to operate them >Waste Management Annual 2eport, )005?< $rans%er Stations WMI owns and operates 3-1 trans%er stations that ser#e as e%%icient way stations 'etween collection points and land%ill disposal< At these stations waste is consolidated and compacted %or e#entual transport to land%ills< *hey own more trans%er stations than their maCor competitors< *his ena'les them to 'e

Waste Management Company Analysis )1 more e%%icient in the transportation and disposal o% waste >Waste Management, )005?< &and%ills WMI owns and operates the largest networ! o% land%ills in the industry< As o% Decem'er 31, )005, WMI owned or operated )51 solid waste and si, haBardous waste land%ills< In addition, it managed 105 closed land%ills< WMI utiliBes &e,t Generation *echnology that accelerates the decomposition o% waste in land%ills so that decomposition time is reduced %rom decades to years >Waste Management, )005?< Rec cling 2ecycling has ena'led Waste Management to process newly manu%actured products, and in addition it sa#es #alua'le land%ill space< Waste is sorted out that can 'e recycled and new products are manu%actured %rom this waste >Municipal "olid Waste, )000?< WMI processes more recycla'les than any other company in &orth America< *hrough its su'sidiary, WM 2ecycle America, WMI partners with the local community to process more than .<. million tons o% recycla'le materials each year through its 101 material reco#ery %acilities< 6or commercial accounts, WMI o%%ers easy and cost8e%%ecti#e recycling through its single8 stream recycling, eCycling, or shredding, to regional and national 'ale routes >Waste Management, )005?<

Waste Management Company Analysis 30 #aste'to'energ Waste Management, through their su'sidiary Wheela'rator, is a'le to process gar'age into energy resources< *his is one o% Waste ManagementHs strongest core competencies< In %act none o% their immediate competitors, mentioned in this paper, ha#e that capa'ility< Wheela'ratorHs waste8to8energy plants ha#e the capa'ilities o% producing 401 megawatts o% power, enough to power o#er 100,000 homes >Wheela'rator, )00-?< *he added 'ene%its o% con#erting waste8to8energy, is that it reduces the waste going to land%ills 'y 10I< *he process has also 'een appro#ed 'y the +n#ironmental (rotection Agency as ha#ing one o% the lowest en#ironmental impacts in the generation o% electricity >Waste Management Annual 2eport, )005?< Gas'to'Energ As o% Decem'er 31, )005, WMI was producing commercial Auantities o% methane gas at 100 o% it solid waste land%ills, where it is either sold to electricity utilities or to natural gas suppliers< Waste Management leads the industry in the 'uilding and operations o% methane gas plants< During the )005 year alone, they 'uilt se#en new operations< *hese operations supply enough energy to power around -00,000 homes and ena'le the company to gain renewa'le energy credits %or greenhouse gas emissions >Waste Management, )005?<

Waste Management Company Analysis 31 All o% these competencies gi#e Waste Management the potential to dominate the waste industry< Gowe#er, they are not without competitors< *he ne,t section will discuss the competiti#e en#ironment Waste Management %aces, the top two competitors, and discuss the core competencies o% the top two competitors against Waste Management< Competiti#e +n#ironment Competiti#e (ro%ile *he competiti#e en#ironment in the waste industry is highly %ragmented past the top three competitors >Goo#ers, )000?< In *a'le 5 the comparati#e competiti#e pro%ile o% companies in the waste industry are presented< *hese areas will 'e discussed in the sections 'elow< *a'le 5 Competiti#e pro%ile o% the companies under the waste management Industries )005 WMI A77I+D 2+($B7IC WA"*+ "*+2ICFC7+ "+2=IC+" C9&&+C*I9& 2e#enues >Millions? &et Income >Millions? "ales Growth 2ate >)0038 )005? 2e#enue (er +mployee K13,310 K1,430 3<-1I K4,040<5 K )53<4 3<15I K3,154<) K)10<) 4<05I K1.0<. K11<1 1-<41I K13)<0 K110<10<34I

K)0),-55

K)45,100

K)-.,341

K110,553

K140,3-.

Waste Management Company Analysis 3) A#erage 9perating Margin >)0038 )005? A#erage &et (ro%it Margin >)0038 )005? 2eturn 9n In#estment >)0038 )005? &et Income (er +mployee 1-<-.I 14<-0I 14<5)I ))<10I ).<5.I

0<0.I

)<01I

0<11I

10<10I

13<15I

4<00I

1<34I

4<.5I

.<.1I

1<.3I

K)-,.11

K1.,311

K)-,031

K)0,0--

K11,01)

Data %or *a'le o'tained %rom: http:@@www<reuters<com@%inance@stoc!s@ratiosNsym'olO2"G<& http:@@www<reuters<com@%inance@stoc!s@ratiosNsym'olOAW<& http:@@www<reuters<com@%inance@stoc!s@ratiosNsym'olOWMI<& Revenue *a'le 0 2e#enue WM( 2e#enues >Millions? K13,310 A!!(E) K4,040<5 RE*+,!(C SER-(CES K3,154<) WAS#E S#ER(C/C!E CO..EC#(O. K1.0<. K13)<0

Waste Management Company Analysis 33

6igure 5 In 6igure 5, the graph shows the re#enue in millions %or %i#e %irms in the waste industry< Waste ManagementHs re#enue is higher than all other competitors depicted, com'ined< *he other %our together ha#e earned around K11,000 million, whereas WMI alone has earned K13,310 Million< *he area that seems to 'e growing the most rapidly is the recycling segment o% the industry< *his segment will play an important role in the continued success o% re#enue growth %or Waste Management< 7ast year alone, they recycled 0 Million tons< Net Income *a'le 1 &et Income WM( .et (nco0e 1Millions2 K1,430 A!!(E) K )53<4 RE*+,!(C SER-(CES K)10<) WAS#E S#ER(C/C!E CO..EC#(O. K11<1 K110<-

Waste Management Company Analysis 3-

6igure 0 In *a'le 1 you can see that Waste Management has more net income than other competitors, K1,430 million< *his can 'e attri'uted to their large mar!et share and #aried geographical presence< *hey are %ollowed 'y 2epu'lic "er#ices at K)10<) million and Allied Waste at K)53<40 million< "tericycle and Waste connection ha#e a relati#ely small portion o% the net income presented< In 6igure 0 the graphical representation o% *a'le 1 is presented<

Waste Management Company Analysis 3. Sales Growth *a'le 10 "ales Growth 2ate WM( Sales 3rowth Rate1200 & 20072 3<-1I A!!(E) 3<15I RE*+,!(C SER-(CES 4<05I WAS#E S#ER(C/C!E CO..EC#(O. 1-<41I 10<34I

6igure 1 Waste Management Inc< has lower sales growth rates than all other competitors, e,cept Allied Waste< In *a'le 10 and 6igure 1, these trends can 'e o'ser#ed< *he top two competitors o% Waste Management, Allied and 2epu'lic, ha#e growth rates o% 3<15I and 4<05I respecti#ely< *hese trends signal that the smaller %irms in the industry are rapidly acAuiring new customers< *his e,plains the higher sales growth o% the smaller %irms< Waste Management is so geographically di#ersi%ied that they are struggling to create sales growth< *hey are

Waste Management Company Analysis 34 concentrated on growth through acAuisitions, new technologies, and maintaining their mar!et share< Revenue Per Emplo ee *a'le 11 2e#enue (er +mployee WM( Re4enue *er E05lo$ee K)0),-55 A!!(E) K)45,100 RE*+,!(C SER-(CES K)-.,341 WAS#E S#ER(C/C!E CO..EC#(O. K110,553 K140,3-.

6igure 10 In *a'le 11 and 6igure 10, data shows that Waste Management has the highest return per employee< *he %irm is showing a return o% K)0),-55 per employee, which is more than their top two competitors, Allied Waste and 2epu'lic "er#ices< *heir return per employee is K)45,100 and K)-.,341 respecti#ely<

Waste Management Company Analysis 35 Generally, the more employees a company has the less the per head re#enue< Gowe#er, Waste Management has the highest num'er o% employees, and still has a higher return< *hey are utiliBing their wor!%orce e%%iciently to create #alue %or the company< (verage )perating Income *a'le 1) A#erage 9perating Margin WM( A4era%e O5eratin% Mar%in 1200 & 20072 1-<-.I A!!(E) 14<-0I RE*+,!(C SER-(CES 14<5)I WAS#E CO..EC#(O. ))<10I S#ER(C/C!E ).<5.I

6igure 11 In *a'le 1) and 6igure 11 the operating margins are presented< 9perating margin is calculated 'y di#iding operating income 'y the net sales< *his calculation shows how much money the %irm is actually generating %or each dollar o% sales< *his calculation can show e%%iciency issues< In#estors would li!e to

Waste Management Company Analysis 30 see this margin increasing o#er time< Waste Management has the lowest operating margin, 1-<-.I< Allied has 14<-0I and 2epu'lic has 14<5)I< "tericycle and Waste Connection are actually generating more dollars o% sales and ha#e 'etter operating e,penses than the three largest %irms in the industry< Net Pro%it Margin *a'le 13 &et (ro%it Margin WM( A4era%e .et *ro"it Mar%in 1200 & 20072 0<0.I A!!(E) )<01I RE*+,!(C SER-(CES 0<11I WAS#E CO..EC#(O. 10<10I S#ER(C/C!E 13<15I

6igure 1)

Waste Management Company Analysis 31 In 6igure 1) the last %i#e year a#erage %or net pro%it margin is presented< *he num'ers are also shown in *a'le 13< 6or Waste Management their a#erage net pro%it margin is 0<0.I, which is only one a'o#e the lowest in the industry competitors presented< *his should come as no surprise, since they are the lowest in the a#erage operating margin, as well< Again, Waste Connection and "tericycle ha#e 'etter net pro%it returns o#er the past %i#e years than the top three competitors< Return on Investment *a'le 12eturn on In#estment WM( Return On (n4est0ent 1200 & 20072 4<00I A!!(E) 1<34I RE*+,!(C SER-(CES 4<.5I WAS#E S#ER(C/C!E CO..EC#(O. .<.1I 1<.3I

Waste Management Company Analysis -0

6igure 13 *a'le 1- and 6igure 13 show the return on in#estment %or the %irms o#er the past %i#e years< 6igure 13 #isually depicts the return on in#estment Waste Management had o#er the %i#e year a#erage, 4I< 2epu'lic has pro#ided a return on in#estment o% 4<.5I, and "tericycle has the 'iggest return on in#estment o% 1<.3I< Allied Waste has the worst return on in#estment< Net Income Per Emplo ee *a'le 1. &et Income (er +mployee WM( .et (nco0e *er E05lo$ee K)-,.11 A!!(E) K1.,311 RE*+,!(C SER-(CES K)-,031 WAS#E CO..EC#(O. K)0,0-S#ER(C/C!E K11,01)

Waste Management Company Analysis -1

6igure 16igure 1- and *a'le 1. represents net income per employee< Again, Waste Management has the highest net income %or employee at K)-,.11< "o Waste Management, while ha#ing a lower operating and net pro%it margin, actually get more re#enue per employee than their competitors< *his is in large part due to recent restructuring strategies the %irm has underta!en< *hey ha#e dismissed many o% their administrati#e employees in order to reduce o#erhead costs< *hese %igures denote that Waste Management is e%%icient in generating re#enue through their employees< Conclusion o% competiti#e analysis Waste Management is certainly the 'iggest in the industry< *hey outran! their competitors in re#enue, net income, re#enue per employee, return on in#estments, and net income per employee< Gowe#er, they do not lead in e#ery measurement

Waste Management Company Analysis -) contained in *a'le 5, the competiti#e analysis< *hey need to e#aluate their sales growth, a#erage operating margin, and a#erage net pro%it margins< *he only real threat to Waste Management is the possi'ility o% a loss o% mar!et share, or the merger o% their ne,t two largest competitors< "tericycle and Waste Connection ha#e the potential to 'e an attracti#e acAuisition target %or Waste Management or the other %irms< *hey ha#e high sales growth and operating pro%it margins< "igni%icant Competitors *he waste management industry deals with %i#e di%%erent categories o% waste, created 'y indi#iduals or organiBations< Most o% the %irms competing within the industry pro#ide similar ser#ices< *his is why in large part a %irmsH competiti#e ad#antage depends on its num'er o% geographic locations, resources, ser#ices, and price< "ince Waste Management has such geographically di#ersi%ied holdings they a'le to ser#ice more people, than any o% their competitors< *he ne,t two competitors, 'ased on mar!et share are Allied Waste, with 13I, and 2epu'lic "er#ices, with 4<4I >"char%, )000?< *hese are the two maCor competitors that Waste Management must contend with< Gi#en the %act that these two ha#e started recent merger tal!s, Waste Management should 'e watching their mo#es #ery care%ully< A 'rie% description o% these two competitors is discussed 'elow<

Waste Management Company Analysis -3 (llied #aste Industries Allied Waste Industries is headAuartered in (hoeni,, AP< *hey also ha#e locations in 35 states in the $nited "tates and (uerto 2ico< *hey also deal with non8haBardous solid waste management, waste collection, recycling, and disposal ser#ices to indi#idual and industrial clients< *heir ser#ices start %rom door8to8door collection through the end process o% disposal< *hey ha#e o#er 0 million residential, commercial and industrial customers in o#er 100 maCor mar!ets< *hey employ )3,000 employees and own )11 collection companies, 141 trans%er station, 141 acti#e land%ills, and .3 recycling %acilities< During the )005 operating year they also e,panded their methane gas collection proCects >Allied Waste Annual 2eport, )005?< Allied WasteHs 'usiness strategy encompasses the %ollowing: #ertical integration o% waste ser#ices, impro#ing operating e%%iciencies through the implementation o% 'est practices, %ocusing on impro#ed customer ser#ice, impro#ing and maintaining mar!et position, and to pro#ide %inancial and system support to the ongoing operations o% the organiBation >Allied Waste Annual 2eport, )005?< Repu*lic Services Inc+ 2"I is the second maCor competitor o% Waste Management Industries< *heir corporate o%%ice is at 6lorida and they operate in )1 states< *he company pro#ides ser#ices to

Waste Management Company Analysis -commercial, industrial, municipal, and residential customers< *hey ha#e 134 collection %acilities, 1- trans%er station, .0 solid waste land%ills, and 33 recycling %acilities< *heir strategy is to %ocus on high growth mar!ets >2epu'lic "er#ices Annual 2eport, )005?< 2epu'lic see!s to manage their %ree cash %low to ma,imiBe shareholder #alue 'y rein#esting in the e,isting %leet, eAuipment, and land%ill %acilities< *heir goal is to pro#ide higher le#els o% customer ser#ice and to see! growth o% re#enue< *heir growth strategy is to increase mar!et share through internal growth or acAuisitions< *hey also hope to impro#e margins through the acAuirement o% economies o% scale and scope, cost e%%iciency, and asset utiliBation< *hey are stri#ing to acAuire more commercial, residential, and industrial customer contracts through sales and mar!eting strategies >2epu'lic "er#ices Annual 2eport, )005?< In *a'le 14 the growth rate %or sales is presented, along with net income and re#enue %or each company< *a'le 14 Competitor Comparison Or%ani6ation WM( AW RS3 Relati4e Mar7et 3rowth Rate Share )0<.I )<)I 13I .<1I 4<4I 5<)I

Waste Management Company Analysis -. *his shows that Waste Management should 'e particularly concerned with the growth strategies o% 'oth Allied Waste and 2epu'lic ser#ices< *he sales growth o% Waste Management is only )<)I, while Allied Waste has a .<1I growth rate, and 2epu'lic has a 5<)I growth rate >"char%, )000?< *he growth strategies o% 'oth companies are a direct threat to Waste Management< Allied and 2epu'lic are considering acAuisitions to gain e#en more mar!et share, and %ocusing on the high growth arenas< *hey could #ery easily ta!e o#er Waste ManagementHs mar!et share< Gi#en that Allied and 2epu'lic are considering a merger, Waste Management will need to react Auic!ly< I% those two companies merge then they will ha#e locations in predominantly the same geographic regions as Waste Management< *his will cause 'oth companies to compete o#er customers< *his will also gi#e the new com'ined companies around the same asset Auantities as Waste Management< *his would ta!e away Waste ManagementHs strength in land%ill sites, trans%er stations, and the siBe o% their truc!ing %leet< I% the merger were to happen, this would mo#e the importance on to strategies %ocusing on increased e%%iciencies, customer ser#ice, and price<

Waste Management Company Analysis -4 Competition Core Competencies (llied #aste Allied Waste Industries, Inc< pro#ides solid waste collection, trans%er, recycling and disposal ser#ices %or more than 0 million customers< Collection Allied Waste pro#ides collection ser#ices under %our ser#ice lines: commercial, residential, roll8o%% and recycling

collection< *hey ser#ice residential, commercial, and municipal customers< *hey ha#e 300 collection locations that pro#ide cur'side pic!8up and transportation directly to the land%ill or trans%er station< *hey ser#ice o#er 10 million customers and li!e Waste Management, they also use truc!s and rail systems to transport waste >Allied Waste Annual 2eport, )005?< $rans%er Stations Allied ser#es its customers through its use o% trans%er stations to e%%ecti#ely consolidate solid waste 'e%ore transport to land%ill %acilities< 9n Decem'er 31, )005 Allied Waste owned or operated 141 trans%er stations< *hese stations help to reduce costs 'y compacting waste material prior to transportation >Allied Waste Annual 2eport, )005?< Rec cling Allied Waste operates .3 recycling %acilities< *hese %acilities sort, and process paper, card'oard, aluminum, and

Waste Management Company Analysis -5 other metals< *hey sell the resulting recycled products at the current commodity prices< &and%ills *o ser#ice its customers Allied Waste owns or operates land%ills %or its solid waste collection< At the end o% )005, the company had a networ! o% 141 acti#e land%ills< *hey do not possess any haBardous land%ill site permits, li!e Waste Management >Allied Waste Annual 2eport, )005?< Gas'to'Energ Allied Waste also has .0 gas8to8energy sites %or the collection o% methane gas in the production o% energy< Waste Management also has this core competency >Allied Waste Annual 2eport, )005?< Repu*lic Services, Inc+ 2epu'lic "er#ices operations include the collection, trans%er, and disposal o% solid waste< Collection 2epu'lic "er#ices pro#ides non8haBardous solid waste collection ser#ices %or commercial, industrial, municipal and residential customers through 134 collection companies located in )1 states< Again, they pro#ide cur'side ser#ice %or their residential customers< *hey also ser#ice commercial, industrial, and municipal customers< *hey do not possess haBardous waste land%ill sites >2epu'lic "er#ices, Annual 2eport, )005?<

Waste Management Company Analysis -0 $rans%er Stations As o% Decem'er 31, )005, 2epu'lic "er#ices owned or operated 1- trans%er stations< Waste at these %acilities is compacted and trans%erred to trailers %or transport to land%ills or recycling %acilities< $nli!e Waste Management and Allied they do not ha#e rail systems to transport waste on >2epu'lic "er#ices, Annual 2eport, )005?< &and%ills 2epu'lic "er#ices operates .0 land%ills, some o% which accept non8haBardous special waste, including utility ash, as'estos and contaminated soil >2epu'lic "er#ices, Annual 2eport, )005?< Rec cling In addition, 2epu'lic "er#ices has 33 recycling %acilities and other recycling operations< 2ecycled materials are sal#aged and sold to third parties >2epu'lic "er#ices, Annual 2eport, )005?< "ummary o% Core Competencies It is easy to see %rom the listing o% the core competencies o% Waste Management, Allied Waste, and 2epu'lic "er#ices that each has similar core competencies< *hey all ha#e land%ills, trans%er stations, and recycling centers< Allied Waste and Waste Management 'oth process methane gas into energy, while only Waste Management has the capa'ility to trans%er waste into

Waste Management Company Analysis -1 energy< *his is why we ha#e identi%ied waste8to8energy as their most important core competency< *his is not to say that this cannot 'e copied 'y their competitors in the %uture, 'ut presently, it is their uniAue competency< In addition each %irm has managerial !nowledge competencies< *hese %irms all ha#e industry e,perience in the #arious competencies listed a'o#e, with the e,ception o% the gas and waste8to8energy areas< All the %irms seem to pursue the same cost sa#ing initiati#es and customer ser#ice impro#ements< Due to Waste ManagementHs geographic presence, siBe, and asset 'ase they are not particularly #ulnera'le to the competition, as it stands< Waste Management has the resources to continue ad#anced research in energy generation alternati#es< *hey also ha#e locations in more states than their other two competitors< *heir most #ulnera'le point would 'e a loss o% mar!et share, since most o% their re#enues come %rom their collection ser#ices< (articipants in the waste industry tend to %ollow the trends and do not pursue direct attac!s on one another< *his might 'e due to Waste ManagementHs siBe, 'ecause Auite %ran!ly, neither o% Waste ManagementHs competitors has had the geographic presence to gi#e them a run %or their money< Gowe#er, this Cust might happen i% Allied and 2epu'lic merge<

Waste Management Company Analysis .0 :ey 6actors o% Competition Companies in the waste management industry compete mainly on geographic location, pricing, and Auality o% operations >2epu'lic "er#ices Annual 2eport, )005?< 9ther %actors that can 'e considered as %actors to competition include mar!et trends toward recycling, cost e%%iciencies, and regulatory licensing< Geographic &ocation Geographic location plays a maCor role in a %irmsH a'ility to compete in this industry< Waste Management has more locations than either Allied or 2epu'lic< *his gi#es Waste Management a competiti#e ad#antage o#er their ri#als< *his is one reason Allied and 2epu'lic are considering a merger >Waste Management Annual 2eport, )005?< Pricing With #olumes declining, %irms in this industry are instead turning to organic growth to support operations, in the %orm o% price increases< It is important %or %irmsH to control costs and minimiBe the amount o% cost passed on to customers< I% competitors are in the same geographic region, 'ut one has higher pricing, it is li!ely they will lose customers< *he industry trends say that it is unli!ely the price structure will di%%er drastically 'etween %irms, 'ecause the 'igger %irms are hesitant a'out going into a price war >=alue 7ine 2epu'lic "er#ices, )000?<

Waste Management Company Analysis .1 -ualit o% )perations

6irms are competing more and more on customer ser#ice< "ince each pro#ide relati#ely the same ser#ices, and ha#e the same pricing structure, %irms must impro#e customer ser#ice< *his includes Lright priceM strategies 'y Waste Management and similar pricing strategies %rom 2epu'lic and Allied >Waste Management Annual 2eport, )005?< Increases in Rec cling *rends in the industry are also mo#ing toward an increased %ocus on recycling and en#ironmentally %riendly programs< +n#ironmental pollution is one o% the 'iggest pro'lems that this industry has to sol#e< Increased demand %rom customers and go#ernment regulators %or en#ironmentally %riendly solutions is dri#ing the competition in the recycla'le commodities arena< 6irms are increasingly competing on their a'ility to per%orm tas!s in an en#ironmentally %riendly manner, and reduce their dependence on new land%ills %or sustaina'ility< Cost E%%ectiveness With decreases in #olumes, all the %irms in the industry are wor!ing on cost e%%iciency programs< *his ena'les the %irms to reduce the amount o% cost it passes on to the customer< *his is #ery important in the geographic locations that ha#e more than one competitor< It also has added 'ene%its to the company

Waste Management Company Analysis .) o% increasing pro%its, the utiliBation less resources, and the potential to earn more return< 9ne o% the main %actors in the waste industry is %uel< 6uel is one o% the most important %actors, 'ecause o% collection truc!s< 6irms ha#e thousands o% truc!s, which use millions o% gallons o% %uel %or collection %rom door to door< Waste Management has recently started to e,plore alternati#e %uel usage in their %leet >Waste Management, )000?< Governmental Permits 9ne o% the other !ey %actors to competition is the a'ility o% the %irms to o'tain and maintain go#ernment permits %or operations< *hey also ha#e to ensure compliance with local and %ederal regulatory laws that could close them down< *hose companies that can o'tain the reAuired permits ha#e a competiti#e ad#antage o#er those %irms that cannot< Competiti#e "ummary In the waste industry indi#iduals, municipalities, commercial, and industrial organiBations de%ine customer e,pectations< With the go#ernment regulations in the industry %irms are rule ta!ers< *hey ha#e #ery little lead8way to 'e a rule 'rea!er< I% they do not %ollow set industry regulations they can 'e %ined or shutdown< (rices remain relati#ely in8line among competitors< *here ha#e not 'een any price wars in the waste industry< Waste Management, as well as, Allied and

Waste Management Company Analysis .3 2epu'lic ha#e largely grown organically o#er the past year< With increased %uel prices and operational costs, the cost ad#antages Waste Management has seen in the past has 'een eroded< *he competition is 'ecoming increasingly dependent on cost sa#ings, to generate higher returns< Waste Management is positioned well within the growth segments o% recycling and energy generation< *hey ha#e uniAue operations in the waste8to8energy and more recycling operations than their competitors< *hey are strong in e#ery segment they participate in due to their geographic locations, resources, and a'ilities< Gowe#er, Allied is Auic!ly mo#ing into the gas8to8 energy segment, and i% they merge with 2epu'lic they will ha#e nearly the same asset strength as Waste Management< 2ight now Allied Waste and 2epu'lic are positioned as the num'er two and three competitor in disposal, trans%er, and recycling segments >Waste Management, )000?< In the ne,t section we will re#iew !ey ratios o% Waste Management and their !ey competitors< *here will also 'e discussions on how Waste Management can impro#e these ratios against their competitors< 6inancial Analysis 6inancial Analysis: Waste Management, Inc< *his analysis will %ocus on the %inancial per%ormance o% Waste Management, Inc< and its top two competitors in the solid

Waste Management Company Analysis .waste industry, Allied Waste and 2epu'lic "er#ices %or the years )00- through )005< It is hoped that through this analysis the %inancial strengths and wea!nesses o% Waste Management and its maCor competitors will 'e recogniBedD strengths can 'e e,ploited and wea!nesses can 'e impro#ed< *he %inancial data presented in this analysis was compiled %rom each companyHs )005 annual report and %orm 10:, Morningstar, and Fahoo 6inance< *he maCority o% the ratios were calculated independently< *he %inancial analysis includes re#enue and income analysis, mar!et #alue analysis, and %inancial ratios< *he ratios are compared with Allied Waste and 2epu'lic "er#ices, and are presented in the %ollowing segments: pro%ita'ility ratios,

liAuidity ratios, le#erage ratios, turno#er ratios, and sol#ency ratios< In addition, under each ratio segment, recommendations %or impro#ement are presented< Corporate (ro%iles *he waste management industry is made up primarily o% three companiesD Waste Management Inc<, Allied Waste Industries, and 2epu'lic "er#ices< Waste Management has the largest mar!et share at )1I, %ollowed 'y Allied Waste at 13I, and 2epu'lic "er#ices at 5I mar!et share< *he remaining .1I o% the industry is highly %ragmented among many smaller competitors<

Waste Management Company Analysis ..

Industry Mar!et "hare

)1I .1I 13I 5I WMI AW 2"G 9thers

6igure 1. Industry Mar!et "hare #aste Management, Inc+ .#MI/ Waste Management, Inc< pro#ides integrated waste ser#ices in the $nited "tates, (uerto 2ico, and Canada< It o%%ers collection, trans%er, recycling, disposal, and waste8to8energy ser#ices< *he company also pro#ides additional waste management ser#ices, such as on8site ser#ices, methane gas reco#ery, and third8party su'contracted and administrati#e ser#ices< It ser#ices commercial, industrial, municipal, and residential customers, as well as other waste management companies, electric utilities, and go#ernmental entities< It is currently the largest waste disposal company in &orth America, and is 'ased in Gouston, *e,as >www<%inance<yahoo<com@ANsOWMI?< *he re#enue o% Waste Management can 'e 'ro!en into si, segments that include: collection, land%ills, trans%er stations,

Waste Management Company Analysis .4 recycling, and waste8to8energy< Waste Management recei#es .4I o% its re#enue %rom collection ser#ices, )0I %rom land%ill, 11I %rom trans%er, 0<3I %rom recycling, and 4I %rom waste8to8energy< 6igure 14 shows the 'rea!out o% these re#enues %or the )005 year< 2e#enue "ources Waste Management, Inc<
4I

Collection 7and%ill

0I 11I

..I )0I

*rans%er 2ecycling Waste8to8 +nergy

6igure 14 2e#enue "ources WMI

Data: Annual 2eport, WMI

*he mi, o% operating re#enues %rom Waste ManagementHs di%%erent ser#ices is re%lected in the *a'le 15< 2ecycling showed an increase o% K))- million %or )005, while the rest o% the ser#ices showed decreases< *hese decreases were due to lower #olumes, as a result o% signi%icant slowdown in residential construction >Annual 2eport, WMI, )005?<

*a'le 15

Waste Management Company Analysis .5 9perating 2e#enues 8 WMI )005 Collection 0,517and%ill 3,0-5 *rans%er 1,4.Wheela'rator 040 2ecycling and other 1,)10 Intercompany 8),)51 *otal 13,310 Data: www<wastemanagement<com )004 0,035 3,115 1,00) 10) 1,058),--1 13,343 )00. 0,433 3,001 1,5.4 051 1,103 8),-44 13,05-

(llied #aste Industries, Inc+ .(#/ Allied Waste Industries, Inc< operates as a non8haBardous solid waste management company in the $nited "tates and (uerto 2ico< *he company pro#ides collection, trans%er, recycling, and disposal ser#ices %or residential, commercial, and industrial customers< Allied Waste Industries is currently the num'er two waste management company and is headAuartered in (hoeni,, AriBona>www<%inance<yahoo<com@ANsOAW?< In 6igure 15 the re#enue sources %or Allied Waste are presented %or )005<

Waste Management Company Analysis .0

2e#enue "ources 8 Allied Waste 5I -I .I 1-I 50I Collection 7and%ill *rans%er 2ecycling 9ther

6igure 15 2e#enue "ources, AW Repu*lic Services, Inc+ .RSG/

Data: Annual 2eport, AW

2epu'lic "er#ices, Inc< pro#ides non8haBardous solid waste collection and disposal ser#ices %or commercial, industrial, municipal, and residential customers in the $nited "tates< It is currently ran!ed as the num'er three waste management company in the $nited "tates< 2epu'lic "er#ices, Inc< was %ounded in 1114 and is headAuartered in 6ort 7auderdale, 6lorida >www<%inance<yahoo<com@ANs@2"G?< In 6igure 10 the re#enue sources %or 2epu'lic "er#ices are presented 'y percentage %or )005<

Waste Management Company Analysis .1

2e#enue "ources 8 2epu'lic "er#ices

1I 1I

4I

Collection

54I

7and%ill *rans%er 2ecycling

6igure 10 2e#enue "ources, 2"G

Data: Annual 2eport, 2"G

*a'le 10 summariBes the re#enue sources %or all companies in percentages %or )005<

*a'le 10 2e#enue "ources 2e#enue "ources WMI AW 2"G Collection .4I 50I 54I 7and%ill )0I 1-I 1I *rans%er 11<0I 5I 1I 2ecycling 0<3I -I 4I Waste8to8+nergy 4I 0I 0I 9ther 0I .I 0I Data: Annual 2eport, )000 www<wastemanagement<com, www<awin<com, www<repu'licser#ices<com Growth Analysis Gi#en the %act that .1I o% the mar!et is controlled 'y many small %irms, growth is a #ital opportunity %or %irms in the

Waste Management Company Analysis 40 waste industry< *he growth analysis section includes data and comments co#ering the areas o% re#enue >sales? and income< Revenue .sales/ As o% Decem'er )005, re#enues at Waste Management were K13<31 'illion, down <35I %rom )004 >K13<34 'illion?< Allied Waste had )005 re#enues o% K4<1 'illion, up )<.I %rom )004 >K.<1 'illion?< 2epu'lic "er#ices re#enue %or )005 was K3<11 'illion, up 3<1I %rom )004 >K3<05 'illion?< *he re#enues %or Waste Management were lower 'y K.3 million in )005, primarily as a result o% #olume declines and di#estitures and o%%set largely 'y increased yields %rom the 'ase 'usiness and higher recycling commodity prices >Annual 2eport, WMI, )005?< Di#estures included underper%orming and non8 strategic operations< *he operations di#ested were mainly collection ser#ices, and a %ew recycling and trans%er stations< *he re#enues %or Allied Waste increased )<.I in )005D K140<) million primarily as a continued result o% price growth %rom a 4I price increase in )00. >Annual 2eport, AW, )005?< 2epu'lic "er#ices had an increase o% 3<1I, with re#enues increasing K10.<4 million, primarily due to a pricing initiati#e instituted in )003 >Annual 2eport, 2"G, )005?< 6igure 11 re%lects re#enue results %or Waste Management %rom )00- through )005:

Waste Management Company Analysis 41

Waste Management 2e#enue 13,400.0 13,-00<0 13,)00<0 13,000<0 1),000<0 1),400<0 1),-00<0 1),)00<0 1),000<0 )00)00. )004 )005 Data: www<morningstar<com

2e#enue

6igure 11 Waste Management 2e#enue

*he *a'le 11 summariBes the %our8year re#enues %or each company: *a'le 11 2e#enue 2e#enue -8 year Waste Management Allied Waste )001),.14<0 .,34)<0 )00. 13,05-<0 .,41)<) )004 13,343<0 .,100<. 3,050<4 )005 13,310<0 4,040<5 3,154<)

2epu'lic ),500<1 ),043<1 "er#ices Data: www<morningstar<com Net Income

&et income is determined 'y su'tracting cost o% goods sold, depreciation, ta,es, interest, and other e,penses %rom re#enue<

Waste Management Company Analysis 4) Although Waste ManagementHs re#enue was down, the companyHs net income was up 1<)I, or K1- million, primarily %rom decreases in operating e,penses, as well as signi%icant returns pro#ided 'y its recycling operations >Annual 2eport, WMI, )005?< 6igure )0 shows the net income trend %or Waste Management in millions, %rom )00- through )005:

Waste Management &et Income 1-00<0 1)00<0 1000<0 000<0 400<0 -00<0 )00<0 0<0 )00)00. )004 )005 &et Income

6igure )0

Waste Management &et Income Data: www<morningstar<com

Allied Waste had a signi%icant net income increase in )005 o% 50I or K11)<5 million o#er )004 net income< *his is attri'uta'le to re#enue increases o% 4I during )005 and a decrease in operating e,penses o% 1<5I %rom )004 to )005 >Annual 2eport, AW, )005?<

Waste Management Company Analysis 43 2epu'lic Waste had a moderate net income increase o% 3<0I or K10<4 million, the continued result o% price initiati#es in )003 >Annual 2eport, 2"G, )005?< *a'le )0 summariBes the %our8year net income amounts %or each company: *a'le )0 &et Income &et Income 8 - Fr< Waste Management Allied Waste -1<3 )03<0 2epu'lic )35<1 ).3<5 "er#ices Data: www<morningstar<com )00)00. )004 )005 131<0 1,10)<0 1,1-1<0 1,143<0 140<1 )51<4 )53<4 )10<)

*a'le )1 ran!s the re#enue and net income %or the three companies %or the year )005< It is clear that Waste Management has o#er dou'le the re#enue o% Allied Waste, and o#er Auadruple the re#enue o% 2epu'lic "er#ices< Waste Management also has %our times the net income o% Allied and 2epu'lic< *a'le )1 Company 2an! E 2e#enue %or year )005 Co05an$ Ran7 8 Re4enue & 2007 Re4enue 9i%hest Middle AW E 4,040<5 2"G E )10<) !owest 2"G E 3,154<) AW E )53<4

WMI 8 K13,310 .et (nco0e WMI 8 K1,143 Data: www<morningstar<com

Waste Management Company Analysis 4Mar!et =alue Analysis In this section, will 'e presented se#eral ratios used in determining the #alue o% a companyHs stoc!< It is important to note that none o% these ratios should 'e used 'y themsel#es in trying to determine whether a stoc! is o#er or under#alued 'y the mar!et< *hese ratios include earnings per share, price earnings, price to sales, price to 'oo!, and price to cash %low< +ach one will 'e e,plained and then shown in *a'le 4< Earnings per Share *he earnings per share, represents the amount o% net income that a company ma!es per share o% stoc! that is a#aila'le on the mar!et >Business 2atios, )000?< Companies calculate the earnings per share 'y di#iding the total earnings 'y the num'er o% shares outstanding< All o% the companies reported an increase %or )005 o#er )004 num'ers< Price to Earnings .P0E/ *he price@earnings >(@+? ratio is determined 'y di#iding the mar!et #alue per share o% stoc! 'y the earnings per share o% stoc!< *his ratio gi#es the company an idea o% what the pu'lic is willing to pay per share o% stoc!, 'ased on the companyHs earnings >Business 2atios, )000?< *he *a'le 4 shows that Waste Management has the lowest (@+ ratio among its competitors< "o, in#estors are only willing to pay K1.<00 per K1 o% earnings<

Waste Management Company Analysis 4. Price to Sales .P0S/ *he (rice to "ales, or (@" ratio, is determined 'y di#iding the mar!et capitaliBation o% the stoc! 'y the total re#enues o% the company< 7i!e price earnings, the (@" re%lects the #alue placed on the sales 'y the mar!et< It is desired to ha#e a lower the price to sales ratio 'ecause the in#estor is paying less %or each K1 o% sales >Business 2atios, )000?< Price to !ook .P0!/ *he (rice to Boo! loo!s at mar!et #alue o% stoc! compared to the 'oo! #alue o% the stoc!< It is calculated 'y ta!ing the current price per share and di#iding 'y the 'oo! #alue per share< As with the price to sales, a lower price to 'oo! ratio can signal a good in#estment %or in#estors >Business 2atios, )000?< Price to Cash "low *he (rice to Cash 6low is determined 'y di#iding the stoc!Hs price 'y the cash %low per share< 7ower num'ers, relati#e to the industry and competitors, suggests the mar!et has under#alued the stoc! >Business 2atios, )000?< Waste ManagementHs price to cash %low is under the industry a#erage o% 1-<0I< *a'le )) organiBes all o% these ratios and compares the three companies<

Waste Management Company Analysis 44 *a'le )) Mar!et =alue Analysis )00Earnin%s 5er share Waste Management Allied Waste 2epu'lic "er#ices *rice:Earnin%s Waste Management Allied Waste 2epu'lic "er#ices "/( .00 *rice:Sales Waste Management Allied Waste 2epu'lic "er#ices "/( .00 *rice:,oo7 Waste Management Allied Waste 2epu'lic "er#ices "/( .00 K1<41 K0<11 K1<00 )00. K)<01 K0<-) K1<)0 )004 K)<10 K0<3) K1<31 )005 K)<)3 K0<51 K1<.1

10<5 0-<0 )1<1 11<0

1-<. )0<3 )1<. 15<3

15<. 35<) 11<5 14<0

1.<0 )-<. ))<) 14<.

1<0<4 1<1 1<4

1<0<. )<0 1<.

1<. 0<5 1<1 1<4

1<3 0<5 )<0 1<.

)<1 1<3 3<0 3<0

)<5 1<1 )<0 )<0 5<3<1 5<. 10<0

3<) 1<. )<1 )<1 0<0 -<. 11<0 11<1

)<0 1<3 )<5 )<5 5<0 3<1 1<3 11<4

*rice:Cash ;low Waste Management 5<1 Allied Waste -<4 2epu'lic "er#ices 5<5 "/( .00 11<. Data: www<morningstar<com

Waste Management Company Analysis 45 *a'le )3 ran!s each company in the mar!et #alue analysis< *a'le )3 Company 2an! E Mar!et =alue Analysis WMI 8 K)<)3 2"G 8 K1<.1 (rice@+arnings WMI E 1.<00 2"G 8 ))<)0 (rice@"ales AW E 0<50 WMI 8 1<30 (rice@Boo! WMI 8 )<00 2"G 8 )<50 (rice@Cash 6low 2"G 8 1<3 WMI 8 5<0 Data: www<morningstar<com +arnings per "hare AW 8 K0<51 AW E )-<.0 2"G E )<0 AW 8 1<30 AW 8 3<1

Waste Management has the highest earnings per share and price to 'oo! o% K)<)3 and K)<00 respecti#ely< *hey ha#e the lowest price to earnings, K1.<00, perhaps signaling a good in#estment opportunity< Gowe#er it is in the middle %or price@sales and price@cash %low< Stock Prices *he stoc! price, in *a'le 0, shows the high and lowest stoc! price %or each company %or the years )00- through )005< Because o% 2epu'lic "er#icesH lower de't and high net pro%it margin the mar!et has rewarded it with a steady increase in its high mar!et price< 7i!ewise, the mar!et has rewarded WMI with a consistent increase in stoc! price< *he mar!et has not yet recogniBed Allied WasteHs e%%orts in decreasing its de't and increasing its net pro%it< *a'le )- records the stoc! high8and8 low prices %or each company<

Waste Management Company Analysis 40 *a'le )"toc! (rices E Gighs and 7ows Waste Management 8 Gigh Waste Management 8 7ow Allied Waste 8 Gigh Allied Waste 8 7ow 2epu'lic "er#ices 8 Gigh 2epu'lic "er#ices 8 7ow Data: www<%inanceFahooQ )0031<1 )4<.4 1-<)0 0<) ))<34 14<43 )00. 30<51 )5<)1 13<. 1<50 ).<31 )0<)3 )004 30<3. 33<)0 1<13 4<10 )0<44 ).<3 )005 -0<30 3)<45 13<11 1<3 3-<0. )4<41

(ro%ita'ility 2atios (ro%ita'ility ratios show the com'ined e%%ects o% liAuidity, asset management, and de't on operating results< pro%ita'ility ratios discussed in this section are the gross pro%it margin, operating pro%it margin, net pro%it margin, return on assets, and return on eAuity< Gross Pro%it Margin *he gross pro%it margin is calculated 'y di#iding the gross pro%it 'y re#enue >Brigham, )00-?< Gross pro%it is the amount o% re#enue dollars remaining a%ter the cost o% goods sold has 'een deducted< I% the gross pro%it margin is declining o#er time, it may indicate that your in#entory management needs to 'e impro#ed, or that your prices are not rising as %ast as the cost o% goods >Business 2atios, )000?< *he

Waste Management Company Analysis 41 Waste Management increased its gross pro%it margin 1<1I primarily through a decrease in its operating e,penses o% K10. million >Annual 2eport, WMI, )005?< Allied Waste increased its gross pro%it margin 'y almost )I in )005, primarily a result o% re#enue gains o% K140 million >Annual 2eport, AW, )005?< Although 2epu'lic "er#ices reported an increase o% re#enue o% K10.<1 million, its gross pro%it margin decreased 'y <)I due to a K5)<1 million increase in the cost o% goods sold >Annual 2eport, 2"G, )005?< *a'le ). re%lects the gross pro%it margins %or each company< *a'le ). Gross (ro%it Margin Gross (ro%it )00)00. )004 )005 Margin Waste 3-<)0I 33<10I 3.<50I 34<00I Management Allied Waste 35<10I 3-<50I 3.<50I 35<40I 2epu'lic 34<50I 35<00I 35<30I 35<10I "er#ices Data: www<wastemanagement<com , www<awin<com , www<repu'licser#ices<com )perating Pro%it Margin *he operating pro%it margin is also !nown as co#erage ratio and measures companyHs earnings 'e%ore interest and ta,es >Business 2atios, )000?< It is determined 'y di#iding the operating income 'y re#enue< *his ratio indicates how much money the company is ma!ing on its primary 'usiness operations< It

Waste Management Company Analysis 50 shows the percentage o% each sales dollar remaining a%ter all normal costs o% operations, and indicates whether the o#erall costs are trending up or down >Business 2atios, )000?< Waste Management posted an increase in operating pro%it margin o% 1<5I primarily %rom realiBing a deduction in depreciation and amortiBation o% K5. million %rom )004 to )005>Annual 2eports, WMI, )005?< Allied Waste saw an increase o% 1<-I, primarily %rom a decrease in the cost o% goods sold o% K05<) million >Morningstar, )000?< 2epu'lic "er#icesH operating pro%it margin remained unchanged %rom )004 at 14<1I< *a'le )4 summariBes the operating pro%it margins %or each company< *a'le )4 9perating (ro%it Margin 9perating (ro%it )00Margin Waste Management 13<40I Allied Waste 14<.0I 2epu'lic 14<50I "er#ices Data: www<morningstar<com Net Pro%it Margin *he net pro%it margin is calculated 'y di#iding the net pro%it 'y re#enues< *his shows you how much money the company has le%t a%ter it has deducted all e,penses< Waste ManagementHs net pro%it margin increased 0<1.I %or )005< Waste ManagementHs net pro%it margin shows that it made a )00. 13<10I 14<00I 14<50I )004 1.<)0I 14<00I 14<10I )005 14<10I 15<-0I 14<10I

Waste Management Company Analysis 51 pro%it o% 0<5-I on each dollar o% sales in )005< Allied WasteHs net pro%it margin gained 1<0I, due to increased re#enue, and decreased C9G" o% K05<) million >Annual 2eport, AW, )005?< 2epu'lic "er#ices net pro%it margin increased slightly as a result o% increased re#enue %rom pricing< *a'le )5 summariBes the net pro%it margins %or each company< *a'le )5 &et (ro%it Margin &et (ro%it )00Margin Waste Management 5<.0I Allied Waste 0<1)I 2epu'lic 0<50I "er#ices Data: www<morningstar<com Return on (ssets *he return o% assets ratio gi#es an indication as to how e%%ecti#e a company is using its assets to generate earnings< 2eturn on assets is made up o% two components: net margin and asset turno#er< &et margin is %ound 'y di#iding net income 'y sales< It re#eals what percentage o% each dollar in sales a company retains< Asset turno#er is %ound 'y di#iding sales 'y assets< It re#eals how well a company does in producing sales %rom its assets< Fou multiply the two components to determine return on assets< Companies with high return on assets, compared to their peers, are more e%%icient at using assets to generate pro%its >"toc!<a'out<com, )000?< )00. 1<0-I 3<..I 0<04I )004 0<.1I )<45I 1<10I )005 0<5-I -<.1I 1<13I

Waste Management Company Analysis 5) In )005 Waste ManagementHs return on assets was .<50I which means that WMI made .<50I on each dollar o% assets< *his is a < )I increase %rom )004< Allied Waste increased its return on assets 'y <0I, %rom 1<15I in )004 to 1<15I in )005< *his was a result o% Allied increasing its net pro%it 'y price increases and decreases in interest e,pense >Annual 2eport, AW, )005?< 2epu'lic "er#ices increased its return on assets 'y <)1I due to increases in net margin, through price increases >Annual 2eport, 2"G, )005?< *a'le )0 shows the return on assets %or each company< *a'le )0 2eturn on Assets 2eturn on )00Assets Waste -<.)I Management Allied Waste 0<34I 2epu'lic .<)0I "er#ices Data: www<morningstar<com Return on E1uit *he return on eAuity measures how well the company did earning money %or its in#estors< *he return on eAuity is the ratio o% net income to stoc!holdersH eAuity< *he calculation is determined 'y di#iding net income earned 'y the company 'y the total shareholdersH eAuity >Business 2atios, )000?< )00. .<4)I 1<.0I .<43I )004 .<.1I 1<15I 4<)3I )005 .<50I 1<15I 4<.)I

Waste Management Company Analysis 53 In )005, Waste ManagementHs return on eAuity was 11<34I which means that Waste Management made 11<34I on each dollar o% shareholdersH eAuity >Morningstar, )000?< Allied Waste earned 0<34I on each dollar o% shareholdersH eAuity, an increase o% )<03I< *his was primarily due to a K11)<5 million increase in its net income >Morningstar, )000?< 2epu'lic "er#ices reported a return on eAuity o% )1<)1I< *his means that it made )1<)1I on each dollar o% shareholdersH eAuity< *his was the result o% lower shareholder eAuity, in com'ination with a higher net income %or )005 >Morningstar, )000?< *a'le )1 shows the return on eAuity %or each company< *a'le )1 2eturn on +Auity 2eturn on +Auity )00Waste Management 14<)0I Allied Waste )<)1I 2epu'lic 1)<40I "er#ices Data: www<morningstar<com )00. 11<..I 0<.0I 1-<.1I )004 10<4)I .<00I 10<-5I )005 11<34I 0<43I )1<)1I

Return on (ssets $rend (nal sis Waste ManagementHs return on assets has trailed the industry %i#e8year a#erage o% .<51I %rom )00- to )004, 'ut was #ery close to matching the a#erage in )005< 6igure )1 is a trend analysis depicting WMI return on assets compared against the industry %i#e8year a#erage<

Waste Management Company Analysis 5-

Waste Management 2eturn on Assets

2et urn (er cen tag e 4 . 3 ) 1 0 )00)00. )004 )005 WMI 2eturn on Assets Industry . yr a#erage 6igure )1 *rend Analysis: Waste Management 29A #s< Industry Data: www<reuters<com Recommendations %or Improvement

Waste Management Company Analysis 5. *a'le 30 summariBes the pro%ita'ility ratios %or the three companies<

*a'le 30 Company 2an! E (ro%ita'ility 2atios Company 2an! Gross (ro%it Margin 9perating (ro%it Margin &et (ro%it Margin 2eturn on Assets 2eturn on +Auity Gighest AW 8 35<4I AW 8 15<-I 2"G 8 1<13I 2"G 8 4<.)I Middle 2"G 8 35<1I WMI 8 14<1I WMI 8 0<5-I WMI 8 .<50I WMI 8 11<-I 7owest WMI 8 34<0I 2"G 8 14<1I AW E -<.1I AW 8 1<15I AW 8 0<43I

2"G 8 )1<)1I Data: www<morningstar<com

*o impro#e its gross pro%it margin ratio, net pro%it margin, return on assets, and return on eAuity, Waste Management should increase its re#enue through pricing, and@or decrease its cost o% doing 'usiness< Increasing prices could cause sales to %all as the pricing en#ironment is #ery competiti#e< (rice increases reAuire a care%ul reading o% in%lation rates, competiti#e %actors, and 'asic supply and demand o% the ser#ices

Waste Management Company Analysis 54 >+ntrepreneur, )000?< Where %easi'le, Waste Management should continue to increase pricing through analyBing each customer account indi#idually >called right8pricing?< "peci%ic decisions on pricing, cost control, e%%iciency, containing interest e,penses, and producti#ity will a%%ect net income< Controlling #aria'le costs will impro#e the gross pro%it margin 'ecause #aria'le e,penses are recorded as operating costs or cost o% goods sold >Business 2atios, )000?< =aria'le costs can 'e decreased 'y managing la'or, maintenance and repair, su'contractor costs, supplies, utilities, %uel, and trans%er and disposal costs< 6or supplies, >containers and eAuipment? the company can e,plore the option o% 'uying in 'ul! and eliminating waste%ul spending in areas o% pac!aging and shipping %ees< Maintenance and repair costs can 'e reduced 'y !eeping up8to8 date maintenance systems in place< 6or la'or, utilities, and su'contractor costs, the company needs to e#aluate the current routes they ha#e %or e%%iciency< 9nce e%%iciencies ha#e 'een e#aluated they can ta!e correcti#e actions to help reduce these costs< It might 'e cheaper %or them to outsource some o% their ser#ices or modi%y pic!up schedules< Additionally, Waste Management recogniBed a decrease in its ris! management cost o% K5- million, a ).<-I change %rom )004 to )005< *his was accomplished 'y %ocusing on sa%ety, and reducing

Waste Management Company Analysis 55 accident and inCury rates< Waste Management should continue their e%%orts in this area< 6uel costs were signi%icantly higher, especially in the %ourth Auarter< Waste Management recei#ed K)1 million in )005

%rom %uel surcharges< Gowe#er, total %uel e,penses %or the year was K.01 million >Annual 2eport, WMI, )005?< Waste Management should in#estigate alternati#e %uel sources %or its %leet, continue to monitor its %leet routes to reduce mileage and maintenance costs, and continue con#ersion o% its truc! %leet %rom diesel to natural gas< *he operating pro%it margin includes cost o% goods sold, selling, general, and administrati#e costs< In )005 Waste Management had an increase in its "G/A costs o% 3<)I< *his is in large part due to the strategic initiati#es the %irm is ta!ing to impro#e operations and processes in the %uture< *o impro#e this area Waste Management should monitor its wor! %orce compensation, pro%essional %ees, and higher sales@mar!eting costs >Annual 2eport, WMI, )005?< *hey should also e#aluate the path their strategic initiati#es are ta!ing to ensure they are creating #alue< While Waste ManagementHs returns on assets and eAuity are less than 2epu'lic "er#icesH, they are higher than the industry a#erage o% 3<0I and 13<1I respecti#ely >M"& Money, )000?< *he company needs to impro#e the way it utiliBes its assets to

Waste Management Company Analysis 50 generate re#enue< *here could 'e o'solete assets, or assets that are not operating e%%iciently in there in#entory< *hese assets should 'e e#aluated %or possi'le disposal< 7iAuidity 2atios *hese ratios measure the amount o% liAuidity that a company has to co#er its short8term de't o'ligations< In general, the greater co#erage o% liAuid assets to short8term lia'ilities, the 'etter the signal that a company can pay its short term de't o'ligations and still %und its ongoing operations >Business 2atios, )000?< Current Ratio *he current ratio >also called the wor!ing capital ratio? measures the companyHs a'ility to generate cash to meet short8 term o'ligations >less than 1) months?< It is determined 'y di#iding the current assets 'y the current lia'ilities< A decline in this ratio can 'e attri'uted to an increase in short8 term de't, a decrease in current assets, or a com'ination o% 'oth >Business 2atios, )000?< Waste ManagementHs ratio %ell slightly in )005, due to a reduction o% current assets 'y K50) million in the area o% cash, cash eAui#alents, and other current assets >Morningstar, )000?< Waste ManagementHs current ratio o% <1. means that %or e#ery dollar o% de't they ha#e K<1. cents o% assets >Business 2atios, )000?< Allied Waste saw its ratio %all %rom <40 to <.), due to a

Waste Management Company Analysis 51 K51-<- million increase in current lia'ilities, mainly in the area o% short8term de't and accrued lia'ilities >Morningstar, )000?< 2epu'lic "er#ices had a slight increase in its current ratio due to an increase o% its current assets 'y K)0<- million in the area o% other current assets >Morningstar, )000?< *a'le 31 re%lects the current ratio #alues %or each company<

*a'le 31 Current 2atio Current 2atio )00Waste Management 0<00 Allied Waste 0<.3 2epu'lic 1<11 "er#ices Data: www<morningstar<com )00. 1<04 0<.0 0<5) )004 0<15 0<40 0<4. )005 0<1. 0<.) 0<44

-uick Ratio *he Auic! ratio, also !nown as the acid test, ser#es a %unction that is similar to that o% the current ratio< *he di%%erence is that the Auic! ratio su'tracts in#entory %rom current assets and compares the resulting %igure to current lia'ilities< *his calculation includes only cash on hand or cash already due %rom accounts recei#a'le >Business 2atios, )000?< In )005 WMI increased its Auic! ratio to 0<04, which means that Waste Management has K0<04 o% Auic! assets %or e#ery K1 o% current lia'ilities< *hese Auic! assets are considered easily

Waste Management Company Analysis 00 trans%era'le into cash< Allied Waste reported a drop in its Auic! ratio to 0<-1< 2epu'lic "er#ices also had a drop in its Auic! ratio to 0<.1< *a'le 3) re%lects the Auic! ratio o% each company<

*a'le 3) ;uic! 2atio ;uic! 2atio )00Waste Management 0<5. Allied Waste 0<-) 2epu'lic 0<1) "er#ices Data: www<morningstar<com Recommendations %or Improvement In *a'le 33 Waste Management is the leader in 'oth the current and Auic! ratios< Gowe#er, the companyHs ratio #alues are less than the industry a#erages o% 1<1 and 1<0 respecti#ely >M"& Money, )000?< *a'le 33 Company 2an! E 7iAuidity 2atios Gighest Current 2atio WMI 8 0<1. ;uic! 2atio WMI 8 0<04 Data: www<morningstar<com Middle 2"G 8 0<44 2"G 8 0<.1 7owest AW 8 0<.) AW 8 0<-1 )00. 0<0) 0<-5 0<4) )004 0<54 0<.) 0<.)005 0<04 0<-1 0<.1

Waste Management Company Analysis 01 *o impro#e these ratios Waste Management can pay o%% current lia'ilities or current 'ills, delay purchases, or consider long8term loans to repay short8term de't< Waste Management could also decrease itsH account recei#a'le turno#er 'y reducing the time it ta!es to collect recei#a'les >Business 2atios, )000?<

7e#erage 2atios >De't Management? *hese ratios measure the e,tent to which the companies use de't %inancing< *he ratios discussed in this section are the de't ratio, the de't to eAuity ratio, interest co#erage, and short8term de't ratio< De*t Ratio .De*t'to'(ssets/ and De*t to E1uit *he de't ratio measures the percentage o% a companyHs assets that are %inanced 'y creditors< It is calculated 'y ta!ing the total de't and di#iding it 'y the total assets< higher ratio indicates a possi'le o#eruse o% le#erage, so a lower ratio is pre%erred >Business 2atios, )000?< *he de't to eAuity ratio indicates the degree o% %inancial de't or le#erage that a company is using to enhance its return< *he %ormula is total de't di#ided 'y ownersH eAuity< It is pre%erred that companies ha#e a %alling trend 'ecause this A

Waste Management Company Analysis 0) indicates they ha#e greater eAuity and less de't >Business 2atios, )000?< In )005, Waste ManagementHs de't ratio increased 1<.I and its de't to eAuity increased 0<10 as a result o% a K.13 million increase in long8term de't and decreases o% K-13 million in short8term de't >Annual 2eport, WMI, )005?< Allied Waste impro#ed its de't ratio 'y 1<4I and de't to eAuity ratio 0<30< *his was primarily due to a K145<4 million reduction in total de't >Morningstar, )000?< 2epu'lic "er#icesH de't to assets increased 3I and its de't to eAuity increased 0<11 as a result o% additional long8term lia'ilities o% K141 million in )005 >Morningstar, )000?< *a'le 3- re%lects the de't ratio >total de't to total assets?, and *a'le 3. shows the de't to eAuity o% all three companies< *a'le 3De't 2atio De't 2atio )00Waste 51<-I Management Allied Waste 00<0I 2epu'lic .0<3I "er#ices Data: www<morningstar<com *a'le 3. De't 2atio and De't to +Auity 2atio De't to +Auity Waste Management )001<35 )00. 1<33 )004 1<)0 )005 1<30 )00. 51<0I 5.<5I 4.<-I )004 41<0I 53<0I 45<0I )005 51<3I 5)<)I 50<0I

Waste Management Company Analysis 03 Allied Waste 3<.4 2epu'lic 0<5) "er#ices Data: www<morningstar<com Interest Coverage Interest co#erage is also !nown as Ltimes interest earned ratio<M *he %ormula is operating income di#ided 'y the interest e,pense< *his is a measure o% how many times your interest o'ligations are co#ered 'y earnings %rom operations< I% this ratio is declining o#er time, it is a clear indication that your %inancial ris! is increasing >Business 2atios, )000?< A higher ratio indicates increased sol#ency< 6or )005 all o% the companies impro#ed on their interest co#erage< Waste Management impro#ed its interest co#erage as a result o% increased operating income o% K)). million and a K)- million reduction in interest e,pense >Annual 2eport, WMI, )005?< Allied Waste impro#ed its interest co#erage due to increased operating income o% K00<3 million, while reducing its interest e,pense 'y K). million >Annual 2eport, AW, )005?< 2epu'lic "er#ices impro#ed its interest co#erage %rom increasing its operating income 14<. million and lowering its interest e,pense 'y K1 million >Annual 2eport, 2"G, )005?< *a'le 34 shows the interest co#erage %or all companies %or )00- through )005< *a'le 34 *imes Interest +arned )<15 0<1) )<)1 1<01 1<03 1<)0

Waste Management Company Analysis 0*imes Interest )00)00. )004 +arned Waste Management 3<53, 3<-., 3<5), Allied Waste 1<14J 1<.4J 1<5J 2epu'lic "er#ices 4<.1J 5<0)J 4<0.J Data: www<wastemanagement<com , www<awin<com , www<repu'licser#ices<com Short'$erm De*t Ratio "hort8*erm De't is a ratio o% short8term de't to total lia'ility and eAuity< "hort term de't is paya'le within 1) months >Business 2atios, )000?< Waste Management decreased its short8term de't ratio )<-I, primarily a result o% reducing its short8term de't 'y K-13 million< Allied Waste increased its short8term de't ratio due to a K3)0<5 million increase in short8term de't o'ligations >Morningstar, )000?< 2epu'lic "er#ices short8term de't ratio remained 'elow 1I< *a'le 35 re%lects the short8term de't ratio %or each company< *a'le 35 "hort8*erm De't "hort8*erm De't )00Waste Management 1<00I Allied Waste )<-0I 2epu'lic 0<10I "er#ices Data: www<morningstar<com Recommendations %or Improvement )00. )<.0I 1<00I 0<10I )004 -<00I 1<50I 0<10I )005 1<40I -<00I 0<10I )005 -<3), 1<14J 5<01J

Waste Management Company Analysis 0. *a'le 30 summariBes the company positions %or all o% the le#erage ratios< *a'le 30 Company 2an! 7e#erage 2atios )ebt Ratio )ebt to E@uit$ (nterest Co4era%e Short&#er0 )ebt 9i%hest AW & 72<2= AW 8 ><? RS3 & 7<?AB AW & '<00= Middle WM( & 7>< = WM( 8 >< ? WM( & '< 2B WM( & ><60= !owest RS3 & 70<?= RS3 & ><20 AW & ><A6B RS3 & <>0=

Data: www<morningstar<com Waste Management can impro#e its le#erage ratios 'y decreasing its de't< In )005, Waste Management increased its long8term de't 'y K.13 million< *his increase is part o% Waste ManagementHs strategy to grow and support their 'usiness >Annual 2eport, WMI, )005?< Waste Management needs to %ind other ways to %inance operations, i% it wishes to impro#e the le#erage ratio< Waste ManagementHs de't@eAuity is at 1<30, which means it has K1<30 o% long term de't to each dollar o% shareholder eAuity< *o impro#e its de't to eAuity ratio, it needs to continue to use its %ree cash %low to pay o%% de't< *he interest co#erage can 'e impro#ed 'y decreasing de't, and securing lower interest rates on long term o'ligations< During )005 Waste Management too! steps to pay down its short8term de't, decreasing it 'y K-13 million >Annual 2eport,

Waste Management Company Analysis 04 WMI, )005?< *hey need to continue this trend o% paying o%% short8term de't, 'ut need to e#aluate how they are doing this< I% they are 'orrowing long8term %unds to do this, then they are not helping their total le#erage position< *urno#er 2atios >Asset Management 2atios? *he asset management ratios measure how e%%ecti#ely the %irm is managing its assets< In this section three ratios are discussed: recei#a'les turno#er, %i,ed assets turno#er, and total assets turno#er<

Receiva*les $urnover Ratio *he accounts recei#a'le turno#er ratio measures the e%%ecti#eness o% the companyHs credit policy< It is determined 'y di#iding the re#enue 'y the a#erage accounts recei#a'le< I% the turno#er is too low, it may indicate the company is 'eing too generous granting credit or is ha#ing di%%iculty collecting %rom its customers< A high recei#a'le turno#er ratio is wanted, 'ecause money is %lowing into the company %aster >Morningstar, )000?< 6or )005, Waste ManagementHs accounts recei#a'le, net o% the allowance %or dou't%ul accounts o% K15 million, was K1,45-< *his is an increase o% K)- million o#er )004 >Annual 2eport, WMI, )005?< Both Allied Waste and 2epu'lic "er#ices had no

Waste Management Company Analysis 05 change in their recei#a'les turno#er ratio< *a'le 31 re%lects the recei#a'le turno#er %or each company< *a'le 31 2ecei#a'les *urno#er 2ecei#a'les *urno#er Waste Management Allied Waste )004<5 0<1 )00. 4<4 0<10<)004 5<) 0<5 10<5 )005 5<1 0<5 10<5

2epu'lic 10<. "er#ices Data: www<morningstar<com

"ixed (ssets $urnover Ratio *he %i,ed assets turno#er measures how e%%ecti#e the %irm uses its plant and eAuipment to generate sales< It is determined 'y di#iding the re#enue 'y the #alue o% the %i,ed assets< Generally it is desira'le to ha#e a higher ratio, 'ecause it indicates that more money is 'eing earned per dollar o% %i,ed assets< I% the ratio is high, it is a good indicator the assets o% the company are 'eing used e%%iciently and e%%ecti#ely< A declining ratio may indicate e,cess in#estments in plant, machinery and eAuipment, or other %i,ed assets >Business 2atios, )000?< It could also indicate the %irm is not operating at the minimum e%%icient scale< In *a'le -0 you can o'ser#e that

Waste Management Company Analysis 00 Waste Management and Allied Waste were unchanged %rom )004 to )005, 'ut 2epu'lic "er#ices had a slight increase< *a'le -0 6i,ed Assets *urno#er 6i,ed Assets *urno#er Waste Management Allied Waste )001<1 1<3 )00. 1<) 1<1<)004 1<) 1<1<)005 1<) 1<1<.

2epu'lic "er#ice 1<Data: www<morningstar<com $otal (ssets $urnover Ratio

*he total assets turno#er ratio measures the turno#er o% all the %irmHs assets and indicates how well a %irm is using all o% its assets to generate re#enue >Business 2atios, )000D "toc! In%ormation, )000?< *he ratio is determined 'y di#iding re#enue 'y total assets< It is desired to ha#e a higher ratio >Business 2atios, )000?< Due to rounding in *a'le ). it appears that Waste Management had a slight impro#ement o% its ratio, while 'oth Allied Waste and 2epu'lic "er#ices were unchanged< In actuality i% you calculate these %igures out to %our places, you can o'ser#e that each o% these companies had a slight increase in this ratio %or )005< *hese changes were due to small increases in 'oth assets and re#enue %or 2epu'lic and Allied Waste< Waste ManagementHs increase was actually re%lecti#e o% less re#enue

Waste Management Company Analysis 01 and assets during )005< *a'le -1 summariBes the total assets turno#er %or each company< *a'le -1 *otal Assets *urno#er *otal Assets *urno#er Waste Management Allied Waste )000<4 0<)00. 0<4 0<0<4 )004 0<4 0<0<5 )005 0<5 0<0<5

2epu'lic 0<4 "er#ices Data: www<morningstar<com Recommendations %or Improvement

*a'le -) summariBes the company positions %or all turno#er ratios<

*a'le -) Company 2an! *urno#er 2atios Company 2an! 8 *urno#er 2atios 8 )005 2ecei#a'les 2"G E 10<5 6i,ed Assets *otal Assets 2"G 8 1<. WMI 8 0<5

AW 8 0<5 AW 8 1<2"G 8 0<5

WMI E 5<1 WMI 8 1<) AW 8 0<-

Data: www<morningstar<com *o impro#e its recei#a'les, Waste Management could ta!e the %ollowing actions: increase collection e%%orts, reduce credit terms, shorten the 'illing process, reduce 'illing errors, and

Waste Management Company Analysis 10 train its credit and collections personnel in proper collection procedures< *o impro#e its %i,ed and total assets Waste Management should continue to %ocus on the superior maintenance program it has recently implemented< *his will help !eep new purchases at a minimum< In addition, leasing should 'e pursued as an alternati#e to eAuipment purchasing< All purchases should show an e,pected increase in pro%ita'ility 'e%ore closing any deal >Business 2atios, )000?< "ol#ency 2atios "ol#ency ratios are measures to assess a companyHs a'ility to meet its long8term o'ligations and remain sol#ent< general, o#erall sol#ency ratios are presented 'elow< *wo

Solvenc

Ratio

*he general sol#ency ratio is determined 'y ta!ing the companyHs total assets di#ided 'y the total lia'ilities< All o%

the companies ha#e more assets than lia'ilities using this ratio >Business 2atios, )000?< Waste ManagementHs sol#ency ratio %ell in )005< *he primary reason %or this was total assets decreased 'y K-). million due to lower current assets >Morningstar, )000?< Allied Waste raised its sol#ency ratio 'y increasing its total assets 'y K135<5 million and through reducing its total lia'ilities K145<4

Waste Management Company Analysis 11 million >Morningstar, )000?< 2epu'lic "er#ices increased their total assets 'y K30<- million in )005 'ut still %ell in sol#ency< *he total lia'ilities %or 2epu'lic "er#ices increased K1.4<5 million, primarily due to long8term de't lia'ilities >Morningstar, )000?< In *a'le -3 the sol#ency ratios %or each company are presented< *a'le -3 "ol#ency 2atio "ol#ency 2atio Waste Management Allied Waste )001<31 1<))00. 1<-1 1<3)004 1<-3 1<3. )005 1<-0 1<31 1<-1

2epu'lic 1<5) 1<.1<-5 "er#ices Data: www<wastemanagement<com , www<awin<com , www<repu'licser#ices<com )perating Cash "low Ratio

*he operating cash %low ratio measures how well current lia'ilities are co#ered 'y the cash %low generated %rom a companyHs operations< *he 9C6 2atio is determined 'y di#iding the cash %low %rom operations 'y the current lia'ilities< It is desired to ha#e a rising operating cash %low ratio >Business 2atios, )000?< Waste Management increased its operating cash %low ratio as a result o% reducing its current lia'ilities, short8term de't, 'y K-13 million< Allied Waste had a %alling operating cash %low

Waste Management Company Analysis 1) ratio, as a result o% increased accrued current lia'ilities in the amount o% K31-<1 million >Morningstar, )000?< 2epu'lic "er#ices increased their operating cash %low during )005, primarily %rom a reduction in the area o% %ederal income ta,es paya'le >Annual 2eport, 2"G, )005?< *a'le -- shows the operating cash %low ratios %or each company< *a'le -9perating Cash 6low 2atio 9perating Cash 6low 2atio Waste Management Allied Waste )000<41 0<35 )00. 0<53 0<-. 1<1. )004 0<50 0<40 0<04 )005 0<10<-5 1<0.

2epu'lic "er#ices 1<-1 Data: www<morningstar<com

Recommendations %or Improvement *a'le -. ran!s the company positions %or all o% the sol#ency ratios< *a'le -. Company 2an! E "ol#ency 2atios Gighest 2"G 8 1<-1 9perating Cash 6low 2"G 8 1<0. Data: www<morningstar<com "ol#ency 2atio Middle WMI 8 1<-0 WMI 8 0<17owest AW 8 1<31 AW 8 0<-5

*o impro#e its sol#ency ratios, Waste Management should increase the #alue o% its assets, decrease lia'ilities, and

Waste Management Company Analysis 13 impro#e operating cash %low< *his is achie#ed through managing %i,ed costs, reducing #aria'le costs, increasing re#enue in%lows, and growing re#enue through pricing and mar!et e,pansion >Business 2atios, )000?< In the waste industry, pricing is #ery competiti#e and there is the propensity %or losing customers to competitors in o#erlapping territories< Waste Management introduced indi#idual customer pricing in )003 and is in8place across all operating groups >Annual 2eport, WMI, )00.?< Waste Management is mostly concerned with reducing its #aria'le costs< *hrough its truc! routing system, L6leet 2outeM, it has impro#ed route density and eliminated redundant truc! routes< In addition, Waste Management uses a %leet maintenance system that automates shop %unctions and trac! repairs< In )005 the company realiBed a sa#ings o% K5- million %rom its ris! management component< *his was the result o% Waste ManagementHs continued %ocus on sa%ety< 6inancial Analysis "ummary In summary, #arious %inancial ratios ha#e 'een presented %or Waste Management and its two competitors< In each section, the ratios and their #alues were gi#en %ollowed 'y recommendations to impro#e each ratio< In addition, a ran!ing ta'le %or )005 #alues showed the position o% Waste Management in comparison with Allied Waste and 2epu'lic "er#ices<

Waste Management Company Analysis 1Waste ManagementHs strengths lie in the %ollowing ratios and %igures: re#enue, gross and net income, total assets turno#er, earnings per share, price per earnings, price per 'oo!, and the liAuidity ratios< Waste Management is in the middle with net pro%it margin, operating pro%it margin, return on assets, return on eAuity, price per sale, and price per cash %low< It ran!s last among its competitors in accounts recei#a'le turno#er, %i,ed asset turno#er, operating pro%it, and gross pro%it margin< *he company e,perienced a decrease in re#enue o% K.3 million in )005, or 0<-I< *his was primarily due to #olume declines in the economic slowdown o% residential and commercial 'uilding and price competition< Waste ManagementHs re#enue growth %or )005 was primarily a result o% increased yield on the 'ase 'usiness %rom pricing< In addition steps were ta!en to try and control company #aria'le costs< *hese #aria'le costs include: maintenance and repair, la'or, %uel, su'contractor costs, trans%er and disposal costs, and ris! management costs< Waste Management is growing its net income through its e%%orts to impro#e operating e%%iciency and get rid o% unpro%ita'le segments< 9ne o% the %inancial challenges %or Waste Management is %inding sources o% growth %rom its current mar!et and in see!ing re#enue growth %rom new mar!ets< It is their current goal to

Waste Management Company Analysis 1. e,plore the opportunity o% acAuisitions to assist them in their growth goals >Annual 2eport, WMI, )005?< In order to impro#e their %inancial situation, it is going to 'e imperati#e that they care%ully e#aluate all e,penditures, and loo! %or ways to strengthen and e,pand their mar!et share< Waste Management currently has the largest mar!et share, yet they are 'ehind their two competitors on operating pro%it, gross pro%it, recei#a'le turno#er, and %i,ed asset turno#er< Correcting the e%%iciencies in operating and gross pro%it is #ery much reliant on re#enue generation and cost reductions< In %act, Allied Waste has e#en started streamlining their operations to reduce costs< Waste Management is well on their way to de#eloping signi%icant cost sa#ings and re#enue generation< *hey ha#e implemented a 'etter maintenance and repair system, a tailored pricing system, sa%ety impro#ements, routing e#aluations, and a restructuring e%%ort %or their organiBation and management structure< Gowe#er, they are going to ha#e to do more< An impending merger 'etween Allied Waste and 2epu'lic "er#ices will 'ring Waste ManagementHs two 'iggest competitors up to their mar!et share and resource le#el< Waste Management needs to start loo!ing at possi'le acAuisition targets that will strengthen the core 'usiness and possi'ly gi#e them an edge o#er the competition< *hey will need

Waste Management Company Analysis 14 to continue their %ocus on energy generation and recycling< *his will include wor!ing closely with go#ernmental authorities to choose locations where the company will 'ene%it most 'y e,panding into< *hey will need to continue there research in alternati#e %uel sources, 'ut in the meantime, the company needs to e#aluate the possi'ility o% route changes< *his might include a di%%erent time to pic!8up gar'age containers in high tra%%ic, ur'an areas< *hey need to e,plore alternati#e 'in siBes %or their industrial clients< 2esearch needs to 'e conducted on the possi'ility o% e,panding the 'in siBe to lengthen the time 'etween pic!8ups< *he cost o% the 'ins would need to 'e e#aluated against the sa#ings to see i% this is a %easi'le alternati#e< Both o% these would reduce the amount o% %uel 'eing spent 'y the company< 7a'or cuts could 'e another option, i% the gar'age truc!s could 'e mainly automated, so one person could run them< *his again would need to 'e e#aluated against the additional costs and the potential cost sa#ings< *he company should also e,plore the possi'ility o% %inding new customers to purchase the products o% their recycling operations< 2e#enue growth opportunities e,ist %or Waste Management in the recycling sector< 2ecycling ser#ices %or )005 increased re#enue 'y K))- million< Waste Management could in#est in 'uilding new recycling %acilities or e,panding e,isting ones< Currently Waste Management operates 11 recycling locations %or

Waste Management Company Analysis 15 paper, glass, metal, and plastics are processed %or resale< *hey also ha#e si, secondary recycling locations that sell the recycled material as raw material %or manu%acturing and consumer use< Waste Management also recycles ru''er, electronics, and commodities >Annual 2eport, WMI, )005?< With stricter regulations 'eing enacted recycling is a strong growth opportunity %or Waste Management< *o impro#e in accounts recei#a'le turno#er, the %irm needs to e#aluate their current pricing policies< Changes might include discounts %or those that pay early, or changing to a pay8up8%ront method %or pro'lem accounts< *he aging o% accounts recei#a'le would need to 'e e#aluated to determine what type o% credit terms the %irm is o%%ering< It may 'e %i,ed 'y Cust a simple change in the credit policies o% the %irm< 6or %i,ed asset turno#er impro#ements the %irm needs to e#aluate the age and condition o% their current %i,ed assets< It could 'e that these assets are not running at optimal speed and need to 'e replaced or disposed o%< It could also 'e that the %irm has assets that are not earning the %irm money and that could 'e disposed o%< *his would 'e something the %irm needs to loo! into immediately< It may 'e that they are o#erpaying %or the assets and could get a cheaper price somewhere else< *hese are all considerations the %irm must ta!e into account when e#aluating ways to impro#e this ratio<

Waste Management Company Analysis 10 While Waste Management has the largest mar!et share, that does not guarantee them a larger pro%it< *hey must continually impro#e and respond to the actions in the mar!et< *his includes staying on top o% regulatory and competiti#e changes< I% the company will continue their initiati#es to impro#e ser#ices, decrease costs, and gain mar!et share they can remain competiti#e< 2e#enue and "ales During the )005 operating year, Waste Management had sales o% K13<31 'illion >Waste Management, )005?< *he pu'lic sector, including %ranchises and municipal contracts pro#ided %or K3<4 'illion o% this amount< Waste Management 'rea!s their re#enue recognition into the di%%erent mar!et segments they ser#e< Based on the )005 gross re#enue, re#enue earnings can 'e allocated 'etween the %ollowing segments: Wheela'rator, 4ID WM2A / 9ther, 0ID +astern Group, )1ID Midwest Group, 11ID "outhern Group )3ID and the Western Group )3I >Waste Management, )005?< Company Growth *he waste industry is e,periencing %lat #olume and wea! pricing >Goo#erHs, )000?< *his is in large part due to the wea!ening construction industry< Construction waste can impact waste #olume 'y as much as 1.I to )0I< Gowe#er, other trends in the industry itsel%, such as recycling and energy generation e%%orts help to o%%set this %or Waste Management Incorporated<

Waste Management Company Analysis 11 "ustaina'le growth goals discussed in 9cto'er )005, 'y C+9 Da#id "teiner, include goals aimed at sustaining the company %rom now until )0)0< *hese goals include: the dou'ling o% waste8 'ased energy production, increase he #olume o% recycla'le material processed, in#estment in cleaner technologies, and the preser#ation o% additional wildli%e ha'itat across &orth America >Waste Management, )005?< *hese strategies are aimed at le#eraging the companyHs core 'usiness strengths and ta!ing ad#antage o% their e,pertise in organic growth >Waste Management, )005?< During the )004 operating year re#enue growth was a modest )<)I, and was mainly composed o% price hi!es< During )005 re#enue growth was 3<3I, attri'uta'le to more price hi!es and e%%iciency 'oosting programs such as, operating unit consolidation, sta%% reduction, and a new %leet maintenance system >Waste Management =alue 7ine, )000?< Gowe#er, e#en these cost initiati#es did not o%%set the impact o% declining #olumes and company di#estments during )005< It is proCected 'y =alue 7ine that in )000 Waste Management will increase ser#ice %ees 'y )<.I to 3<0I o#er )005< "tandard and (oorHs proCects that during the )000 operating year there will 'e low single8digit organic growth stemming %rom such prices hi!es as these< *his should help the company a#erage close to 10I earnings growth o#er )000 >"tandard / (oorHs, )005?<

Waste Management Company Analysis 100 Is this growth picture good enoughN Declining #olumes in the waste industry are %orcing %irms to cut costs and raise prices< *here are also high start8up costs to contend with in the industry< 6or new %irms considering mar!et entrance, the growth rate is pro'a'ly not enough to entice them to enter gi#en the high costs and moderate8to8low growth rate< +,isting %irms will continue to promote cost sa#ings initiati#es and pass costs to customers< *his will generate low organic growth %or the %irm temporarily< Waste Management IncorporatedHs management recogniBe the need to continue e%%orts on lowering operating, general, and administrati#e costs, with standardiBed processes and producti#ity impro#ements >Waste Management, )005?< *he goal %or Waste Management will 'e to !eep customers 'y remaining the lower priced competitor< While growth may not 'e as high as a %ew years prior, there are still growth opportunities %or Waste Management< *hese include growth opportunities and their recycling, waste8to8 energy, and gas8to8energy operations< *he company is positioned well to pull through the slow growth period, as long as it continues itsH %ocus on inno#ati#e proCects and controls costs< (ro%it Margins Waste Management had a net pro%it margin in )005 o% 0<5-I< In *a'le -4 you can see the net pro%it margin %or the years )00through )005< Fou will o'ser#e that pro%it margins ha#e remained

Waste Management Company Analysis 101 relati#ely %lat %or Waste Management< *here were declines in net pro%it %rom )00. to )004 o% <01I, and an increase in )005 o#er )004 pro%its o% <1.I< 9'ser#ing the top competitors o% Waste Management, you will notice the same trend, with relati#ely %lat pro%it changes in %rom )00-8)005 %or 2epu'lic< Allied Waste seems to 'e the only one with wide swings in net pro%it< *a'le -4 &et (ro%it Margin )00Waste Management Allied Waste )00. )004 )005

5<.0I 1<0-I 0<.1I 0<5-I 0<1)I 3<..I )<45I .<11I

2epu'lic "er#ices 0<50I 0<04I 1<10I 1<13I

In related areas net pro%its o% "tericycle, a medical waste disposal company, show a di%%erent trend< In )00- they had net pro%its o% 1.<1I, in )00. it was 1.<3I, in )004 it was 13<4I, and in )005 it was 13<1I >"tericycle, )000?< In the haBardous waste segment, Clean Gar'ors pro%it ratios were as %ollows: in )00- 1<1I, in )00. 3<4I, in )004 4<3I, and a decline in )005 to -<5I >Clean Gar'ors, )000?< In the 'uilding industry, which largely a%%ects waste #olumes, there ha#e 'een signi%icant declines in net pro%it margins during the )004 and )005 operating years< *here trends were rising during )00- and )00., only to plummet during the housing 'u''le 'ust in )004< 6or

Waste Management Company Analysis 10) e,ample, Champion 'uilders had net pro%it margins o% 3<3I during )00., 'ut only <4I in )005 >Champion Builders International, )000?< In the net pro%it comparison %igure, 6igure )), you can see the relati#e changes 'etween net pro%it %or Waste Management and the other industries discussed pre#iously< &et (ro%it Comparison
10<0I 14<0I

"tericycle Clean Gar'ors Champion WMI )00)00. )004 )005

&et (ro%it

1-<0I 1)<0I 10<0I 0<0I 4<0I -<0I )<0I 0<0I

Fear

6igure )) 2eturn on Assets and =elocity *he return o% assets ratio, gi#es an indication as to how e%%ecti#e a company is using itsH assets to generate earnings< 6or )005, Waste management had a return on assets o% .<5I, as calculated using )005 %inancial statements< *his was up %rom the )004 num'er 'y <11I< *hey ha#e 'een steadily impro#ing each year< In )00- they only achie#ed a return o% -<.)I and in )00. they had mo#ed up to a .<4)I return >Waste Management Annual 2eport, )005?<

Waste Management Company Analysis 103 In#entory *urno#er was 01<3 and asset turno#er was <5I %or )005 >Goo#erHs, )000?< *he total asset turno#er ratio measures how much in sales re#enue is generated per dollar o% assets< *he companyHs turno#er ratio o% <50, denotes that %or e#ery 1<-) dollars in assets they can generate one dollar worth o% sales >Morningstar WMI, )000?< *he in#entory turno#er ratio can help the %irm identi%y how e%%iciently in#entory Auantities are 'eing managed< 7ow turno#er can mean the company is carrying o'solete in#entories or that the company is carrying too much or too little in#entory< *hese %igures are important to the in#entory costs o% carrying too much in#entory, or the cost o% running out o% in#entory >Wiley, )000?< Cash Assets 6or Waste Management, =alue 7ine lists cash assets as K444 million in )00., K41- million in )004, and K3-0 million in )005< *he most logical e,planation %or these decreases is the continued %ocus o% Waste Management on paying o%% e,isting de't< "ince the mar!et they participate in is entering the mature stage, they are %ocusing on paying o%% e,isting de'ts that may ha#e 'een %rom start8up or incremental impro#ement costs< *his can 'e seen in the same =alue 7ine report, 'y e,amining the de't due< *he de't due was K.)) million in )00., K0)) million in )004, and K3)1 million in )005>Waste Management =alue 7ine, )000?<

Waste Management Company Analysis 10Cash 6low Cash %low results shows whether the cash generated %rom operations is enough to co#er in#esting< I% it is then the company has a healthy %low o% cash< I% not, then the company may ha#e to %inance their operations 'y selling stoc! >Money Chimp, nd?< &et operating cash %low has 'een increasing each year %rom )003 until )004< *here was a slight decrease in )005 cash %lows o% K101 million >Goo#erHs, )000?< *hese changes are in large part due to the economic downturn and declining #olumes o% waste< Waste Management is com'ating these issues 'y reducing operating costs and increasing their ser#ice %ees< *hey ha#e also started to reduce their o#erseas operations and administrati#e sta%% >Waste Management =alue 7ine, )000?< Items that signi%icantly a%%ected their cash %lows %rom )004 to )005 were as %ollows: changes in ta, 'ene%it recognition under "6A" &o< 1)3>2?D operating income impro#ements, net o% depreciation o% K1.0 million, a reduction during )005 o% ris! management lia'ilities 'y K00 million, increased 'onus payments, increased payments %or lia'ilities, and more trade recei#a'les than in )00.< &et cash %lows %or 2epu'lic "er#ices and Allied Waste ha#e 'een impro#ing, with 2epu'lic ha#ing a slight dip 'etween )00. and )004< *he dip in 2epu'licHs cash %low 'etween )00. and )004 was due, in large part, to an K03 million ta, de%erral %or the

Waste Management Company Analysis 10. )00. operating year 'ased on the I2"H response to Gurricane :atrina< *he net operating cash %low can 'e o'ser#ed in *a'le -5<

*a'le -5 &et 9perating Cash 6low )00)00. )004 )005 WMI ),)10<0 ),311<0 ),.-0<0 ),-31<0 Allied 4.0<514<4 1)1<4 1,0.5<0 2epu'lic 444<3 545<. .))<1 441<3 6or Waste Management their net %inancing cash out%low has increased >Goo#erHs, )000?< *he num'ers that a%%ect the %inancing aspect include the repurchase o% -0 million shares o% stoc! during )005, at cost o% K1<- 'illion< *hey also paid out K-1. million o% cash di#idends in )005 compared to K-54 million in )004 >Waste Management Annual 2eport, )005?< In *a'le -0 the net %inancing cash %low is shown %or Waste Management, 2epu'lic, and Allied Waste< 2epu'lic actually decreased their cash out%low 'etween )004 and )005< Allied Waste increased their cash out%low signi%icantly 'etween )004 and )005< Data %or the prior years are also pro#ided to show trends prior to the current year< *a'le -0 &et 6inancing Cash 6low >millions? WMI )00)00. )004 )005 >1,130<0? >1,010<0? >1,003<0? >1,1-4<0?

Waste Management Company Analysis 104 Allied 2epu'lic >-01<)? >-35<3? >-.<.? >-00<0? >)5-<0? >-01<-? >33-<0? >-00<3?

&et in#esting o#er the past year has decreased %rom )004 num'ers %or all three competitors, e,cept 2epu'lic< 6or Waste Management their net in#esting cash %low has decreased o#er the past year %rom K500 million in )004 to K541 million in )005 >Goo#erHs, )000?< AlliedHs in#estment %ell %rom K401 million in )004 to K.0. million in )005 >Goo#erHs, )000?< In *a'le -1 the net in#esting cash %lows o% all three competitors o#er the past %our years has 'een presented so you can o'ser#e the di%%erent company trends< Decreases are most li!ely the result o% continual cost sa#ings initiati#es during the lower growth period< *a'le -1 &et In#esting Cash 6low >millions? WMI Allied 2epu'lic )00)00. >043<0? >1,04)<0? >.35<1? >403<0? >)04<5? >)15<)? )004 >500<0? >400<0? >)1.<-? )005 >541<0? >.0.<-? >)40<3?

Competiti#e Analysis 6rom %igures presented in the %inancial section, it is easy to see that Waste Management does dominate the mar!et< *hey do ha#e this ad#antage o#er competitors< *hey also ha#e a larger share o% re#enues 'ecause o% this< Gowe#er, they o%ten ran! in

Waste Management Company Analysis 105 'etween their competitors on %inancial indicators< It is clear that they seem to 'e Auite stagnant, due to the %act that they are so large< Gowe#er with merger tal!s, it is clear that Allied Waste and 2epu'lic "er#ices may 'e gaining ground Auic!ly< It will 'e up to Waste Management to respond Auic!ly to their need %or impro#ements and how to maintain their mar!et share< 9ne tool that can help management analyBe the current conditions within the mar!et and organiBation is a "W9* analysis< "W9* Analysis &ow a%ter loo!ing at the company structure and !ey %inancial measurements a "W9* analysis can 'e conducted< *he purpose o% this analysis is to pro#ide managers an understanding o% the %orces that impact company< 9nce these %orces ha#e 'een e%%ecti#ely identi%ied managers can come up with plans to strategically com'at these %orces< "trengths $echnolog Waste Management has current technologies utiliBing waste8 to8energy and gas8to8energy processes< 9ut o% the top three competitors: Allied, Waste Management, and 2epu'lic "er#ices, Waste Management is the only one with this technology !now8how< Strategies "trategies already %ocused on utiliBing alternati#e energy sources to %uel deli#ery truc!s< 9ther strategies 'y Waste

Waste Management Company Analysis 100 Management %ocus on e,panding the waste8to8energy and gas8to8 energy plants<

Glo*al Position Waste Management has operations in the $nited "tates, (uerto 2ico, and Canada< 9nly allied has operations in another country, (uerto 2ico< Market Share Waste Management ser#es nearly )0 million customers >Waste Management, )005?< *hey there%ore ha#e a larger mar!et share than Allied Waste or 2epu'lic ser#ices< Marketing Waste ManagementHs continued %ocus on the en#ironment gi#es them an ad#antage o#er Allied Waste or 2epu'lic "er#ices< Waste Management %ocuses on displaying an en#ironmentally %riendly image< *hey ha#e the Lthin! greenM slogan on the side o% their truc!s and the use o% their old land%ills %or protected wildli%e ha'itats >Waste Management, )005?< *hey also %ocus on the creation o% green energy, currently producing -.0 megawatts o% green energy %rom their methane gas collection programs< *hrough their recycling programs they recycle o#er 3<. million tons o% paper and card'oardD more than ).,000 tons o% aluminumD and

Waste Management Company Analysis 101 processed more than )1-,000 tons o% metals in )005 there'y reducing greenhouse gas emissions >Waste Management, )005?< Products0Services Waste Management has waste8to8energy and gas8to8electricity capa'ilities that other competitors do not possess< &icenses0Permits Waste Management Incorporated has more go#ernment permits %or solid waste land%ills than itsH three closest ri#als com'ines >7ec!ey, )005?< (ssets &and%ills Waste Management owns )55 acti#e land%ill sights, more than any o% their competitors >Waste Management, )005?< +#en i% 2epu'lic and Allied Waste com'ine, Waste Management will still own -1 more land%ills< $rans%er Stations Waste Management currently operates 3-1 trans%er stations >Waste Management, )005?< Gi#en the long distances to some o% the land%ills, the use o% trans%er stations ma!es it more economical %or the company< *he trans%er stations can compact the waste and then transport it to the land%ill or waste8to8 energy %acility< Allied Waste only has 14- trans%er stations >Allied Waste, )005?< 2epu'lic "er#ices only has 13 trans%er stations >2epu'lic "er#ices, )005?<

Waste Management Company Analysis 110 $rucking "leets Waste Management Incorporated has one o% the largest truc!ing %leets in collection ser#ices >Goo#erHs, )000?<

Wea!nesses &eadership Waste Management has a centraliBed structure< $nder

corporate management, there are si, operating groups, o% which %our are organiBed 'y geographic area and two are organiBed 'y %unction< With a centraliBed management structure it ma!es it hard %or them to respond to rapid changes in the competiti#e en#ironment< It also a%%ects the amount o% inno#ation in the company< Inno#ation most readily occurs in decentraliBed operations< "inancial Measures and Returns While some o% Waste ManagementHs %inancial ratios are good, in most cases their competition is still 'etter< 6or return on eAuity and assets Waste Management tends to %all in 'etween itsH two competitors< Fou can see this trend in the %ollowing in%ormation< In *a'le .0, return on assets is depicted< 9'ser#e that Waste ManagementHs return is .<50I, Allied Waste is 1<15I, and repu'lic is 4<.)I< In *a'le .1 the return on eAuity is detailed %or the past %our years< 6or 2eturn on eAuity Waste

Waste Management Company Analysis 111 Management is 11<34I, Allied Waste is 0<43I, and 2epu'lic "er#ices is )1<)1I< In *a'le .) pro%ita'ility ratios are present %or each %irm in ran!ing order< Waste Management tends to earn more re#enue, 'ut has a lower gross pro%it margin that itsH competitors< In the net pro%it region they also lie in 'etween Allied Waste and 2epu'lic "er#ices< *his leads to the point that Waste Management has some room %or impro#ement on these %igures< *a'le .0 2eturn on Assets 2eturn on )00Assets Waste -<.)I Management Allied Waste 0<34I 2epu'lic .<)0I "er#ices Data: www<morningstar<com *a'le .1 2eturn on +Auity 2eturn on +Auity )00Waste Management 14<)0I Allied Waste )<)1I 2epu'lic 1)<40I "er#ices Data: www<morningstar<com *a'le .) Company 2an! E (ro%ita'ility 2atios Company 2an! Gross (ro%it Margin Gighest AW 8 35<4I Middle 2"G 8 7owest WMI 8 34<0I )00. 11<..I 0<.0I 1-<.1I )004 10<4)I .<00I 10<-5I )005 11<34I 0<43I )1<)1I )00. .<4)I 1<.0I .<43I )004 .<.1I 1<15I 4<)3I )005 .<50I 1<15I 4<.)I

Waste Management Company Analysis 11) 35<1I WMI 8 14<1I WMI 8 0<5-I

9perating (ro%it Margin &et (ro%it Margin

AW 8 15<-I 2"G 8 1<13I

2"G 8 14<1I AW E -<.1I

Data: www<morningstar<com

Si2e Gi#en Waste ManagementHs large siBe they will ha#e to 'e care%ul not to underestimate their competition< With 2epu'lic and Allied Waste tal!ing mergers, Waste Management will ha#e to care%ully watch their strategic planning and 'e a'le to react Auic!ly to competitorHs mo#es< In large companies this is sometimes di%%icult to do< Dealing With "trengths and Wea!nesses Waste Management has a maCor strength in their mar!et share, asset Auantity, technological !now8how, and en#ironmentally %riendly operations< *hey can utiliBe these three aspects to gain %irst mo#er ad#antage 'y continually impro#ing and de#eloping these assets< In the energy generation area, Waste Management already as an ad#antage o#er Allied Waste and 2epu'lic "er#ice< *hey already ha#e the technological !now8how, and ha#e already started to 'uild the processing %acilities to support this type o% %uture technology< Waste Management can use these

Waste Management Company Analysis 113 capa'ilities to continue to e,pand in this mar!et< By utiliBing the increasing demand %or power, they can gain %irst mo#er ad#antage o#er Allied Waste and 2epu'lic< *he same is true %or their utiliBation o% gas8to8energy resources< While, Allied is also e,perimenting in this arena, Waste Management has more land%ills to utiliBe in this area< Gi#en their mar!et share, it will 'e hard %or other operating companies to match their a'ility to ser#ice so many parts o% the industry< *hey operate in e#ery state e,cept two >Waste Management, )005?< *hey also operate in Canada and (uerto 2ico< *his gi#es them an ad#antage o#er the %irms only operating in domestic mar!ets< *hey do ha#e to consider that Allied Waste is presently competing with them in (uerto 2ico, also< By continually e,panding their customer 'ase they can maintain and grow in mar!et share< 9% course this is su'Cect to controlling costs and meeting customer needs as well< Waste Management can also le#erage their increasing image to 'e en#ironmentally %riendly to draw in more en#ironmentally conscious consumers and e,pand on their en#ironmental product o%%erings< *his strength has many added 'ene%its< It will 'ene%it the company in the long8run as regulations increase on the trash disposal and land%ill space 'ecomes more8and8more limited< *here is also a large amount o% pro%it potential< *hey

Waste Management Company Analysis 11are essentially ta!ing something gi#en to them and processing it into a re#enue generating product >Waste Management, )005?< Waste Management has one o% the largest asset 'ases %or land%ills, trans%er stations, and truc!s >Waste Management, )005?< With such a large asset 'ase they ha#e the capa'ilities o% ser#icing more customers than their competitors< *hese assets can also 'e le#eraged to generate the company more money 'y %inding ways to e%%ecti#ely use them to their %ullest potential< ConseAuently, this is one o% the areas Waste Management needs to %ocus on impro#ing< Gowe#er, it is clear that i% they can impro#e their return on these assets they ha#e the resources to outper%orm their competition< In dealing with wea!nesses, Waste Management should continually loo! %or ways to create a culture that %osters inno#ation< *his could include the decentraliBation o% management< With decentraliBation, this will gi#e the local 'ranches the opportunity to react Auic!ly to competitor mo#es and customer needs o% their speci%ic regions< Concerning %inancial measures there will need to 'e a continued e%%ort in impro#ing the net, operating, and gross pro%its 'y %urther implementation o% cost sa#ing programs< Waste Management has already started to do this 'y getting rid o% unpro%ita'le customers, reducing administrati#e positions, and with impro#ed sa%ety standards %or employees >Waste Management,

Waste Management Company Analysis 11. )005?< It is #ital to o#ercome their %inancial wea!nesses that they %ocus on utiliBing their assets 'etter< *his could include the e#aluation o% assets to determine i% they are o'solete or i% the costs o% retaining the asset outweigh the 'ene%its, or pro%it generation< *hese steps would help to impro#e their return on assets and could %ree8up #alua'le cash to 'e in#ested elsewhere< While, Waste Management has 'etter ratios than their two competitors, they do lie slightly 'elow the industry a#erage< *o o#ercome their low Auic! and current ratios they could e#aluate their credit policy and e#aluate the current assets< *his might include issuing discounts to those that pay in a shorter time period< It might also include the e#aluation o% in#entory< Gow, much in#entory is the %irm holding and is it cost e%%ecti#e to hold this le#el< *hey should e#aluate whether the money in#ested in in#entory could 'e 'etter in#ested elsewhere< *he %inal wea!ness is Waste ManagementHs large siBe< +#en though their siBe is attri'uta'le to their many locations, which is 'ene%icial in growth opportunities, it can 'e their down%all< Waste Management needs to ta!e steps to continue inno#ation and customer retention, especially with the merger o% Allied Waste and 2epu'lic "er#ices< I% they underestimate the power o% their competitors this could 'e to their detriment< *hey will also

Waste Management Company Analysis 114 need to continue to impro#e relations with go#ernmental agencies that ha#e the power to re#o!e any operating licenses< 9pportunities Renewa*le Energ Sources

In#estment in renewa'le energy production is one o% the largest opportunities %or Waste Management Incorporated< *his particular segment o% their industry has #ery attracti#e growth potential< Demand %or renewa'le energy is growing #ery rapidly< 2ight now renewa'le energy sources only ma!e up around 5I o% the $<"< electricity supply >Waste Management, Inc< "W9* Analysis, )005?< Increases in regulation and the demand %or more clean sources o% energy are a 'ig opportunity %or Waste Management to gain a strategic position at the head o% this mar!et< Rec cling Programs and Gas Energ *here is also the continued attracti#eness o% increased utiliBation o% recycling programs and the land%ill gas to energy proCects< During )005, se#en land%ill gas8to8energy proCects were operational< Gi#en their e,pertise in that area they ha#e the opportunity to le#erage this !nowledge to 'ene%it third parties >Waste Management, )005?< *hreats Political and Governmental Due to the amount o% go#ernmental regulation within the waste management industry, the threat o% increasing regulatory

Waste Management Company Analysis 115 acts is prominent< *hese regulatory actions are li!ely to get more and more stringent as time progresses< *his can add to increased costs o% operations, and regulatory permits< Also, recent regulation changes in construction de'ris disposal in land%ills can a%%ect the company< *he regulations limit the type o% materials, %rom construction, that can 'e disposed o% in land%ills< *his can increase the costs o% the %irm in %inding alternati#e disposal methods >Waste Management, Inc< "W9* Analysis, )005?< &egal "orces "igni%icant threats e,ist regarding lawsuits %rom en#ironmental #iolations gi#en the %orm o% 'usiness< As o% Decem'er 31, )005 %our lawsuits ha#e 'een %iled against Waste Management and itsH su'sidiaries %or such #iolations< *he allegations are that Waste Management and itsH su'sidiaries %ailed to comply with proper storage reAuirements %or leachate at their land%ill locations< *hey also #iolated %ederal air regulations at one o% their land%ills, %ailed to meet reporting reAuirements, and #iolated &ational (ollutant Discharge permits conditions at a land%ill< *hey 'elie#e that these charges will amount to K100,000 or more >Waste Management Annual 2eports, )005?< Economic Conditions and Complementors

Waste Management Company Analysis 110 Due to the recent economic downturn waste #olumes are declining< According to the IM6 world economy outloo!, the real GD( growth o% the $<"< is e,pected to slowdown in )000< It is estimated that GD( will only grow 1<1I in )000, down %rom the 3<3I the industry saw in )004 >Waste Management, Inc< "W9* Analysis, )005?< *his leads to less re#enue without cost increases< With cost increases comes the potential loss o% customers to competitors who may ha#e lower prices< It is imperati#e %or Waste Management to control cost in order to o%%set the amount o% cost increases passed on to customers< 2ecent declines in complementing industries, such as the 'uilding industry, also ha#e a negati#e impact on waste #olumes< It is estimated that 1.I to 30I o% waste #olumes are generated 'y the construction industry< Waste minimiBation strategies are also a threat to the company< With increases in the costs o% treating waste and disposing o% waste, companies loo! %or other alternati#es to reduce waste< Industries start to adopt cleaner technologies and put cheaper, pollution pre#ention eAuipment in place< In the haBardous waste segment, which Waste Management also competes, is currently seeing the implementation o% waste minimiBation through reuse and recycling programs< Competition

Waste Management Company Analysis 111 With the li!ely merger o% 2epu'lic "er#ices and Allied Waste, Waste Management will encounter a 'igger competitor than they ha#e recently dealt with< *heir competition will now ha#e the com'ined resources to issue a su'stantial threat to Waste ManagementHs mar!et position< *he company must also contend with high competition %rom municipalities and regional go#ernment authorities< *hese competitors ha#e the ad#antage o% su'sidies, gi#ing them a competiti#e ad#antage o#er pri#ate %irms<

Management o% 9pportunities and *hreats In order to ta!e ad#antage o% opportunities within the mar!et Waste Management will need to continue their %ocus on energy generation< *his will come in the %orm o% increasing the waste8to8energy production %acilities and continual impro#ement in waste8to8energy processes< Money should 'e allocated to research and de#elopment in order to stay ahead o% other competitors and loo! %or continuing alternati#es %or waste disposal< Waste Management will also need to continue to impro#e and %ocus on recycling programs to support the more en#ironmentally %riendly customers and loo! at e,pansionary opportunities< *here is also the opportunity to 'etter utiliBe e,isting resources to generate increases in re#enue< As %or threats, minimiBation o% the impact o% go#ernment regulations will 'e hard to control< 9% course there is always

Waste Management Company Analysis 1)0 lo''ying, 'ut there is not guarantee< *he 'est way to minimiBe this threat is to stay ahead o% the changing regulations 'y continuous impro#ement o% disposal processes< *his should generate more e%%iciency %or the %irm, increased re#enues, and less pro'lems with more stringent regulations< In dealing with the economic downturn and municipal competition, the %irm will need to continue to %ocus on cost e%%ecti#e programs< *hese programs will allow the %irm to reduce costs and continue re#enue generation, with small increases to the customer< It may 'e 'ene%icial to loo! at the mar!et segments the %irm is currently ser#icing, and e,plore opportunities in une,ploited mar!et niches< *he main %ocus should 'e on cost reduction and customer retention< *a'le .3 "trategy@"W9* Matri, Wor!sheet Waste Management, Inc< "trengths 8 " "9 $se strengths 1 W*+ 9perations "trat to ta!e egies ad#antage o% opportunities ) W9 9#ercome Gas8to8+nergy "trategies wea!nesses 'y 9perations ta!ing ad#antage o% 3 opportunities Glo'al "* $se strengths 9perations "trategies to a#oid In (uerto 2ico / threats Canada Wea!nesses E W 1 CentraliBed Management "tructure ) Mid8range returns %or 2eturn on assets .<50I 3 7arge "iBe

Waste Management Company Analysis 1)1 W* MinimiBe "trategies wea!nesses and a#oid threats

)1I Mar!et "hare . +n#ironmental (rograms 4 7arge asset 'ase, with )55 Acti#e land%ills and 31- *rans%er "tations 5 7argest truc!ing %leet in waste collection

- 2eturn on eAuity midrange 11<34I . Midrange operating and net pro%it margins< 14<1I and 0<5-I respecti#ely 4 7owest gross pro%it margin o% 34<0I 5 7ower ;uic! ratio <04 and current ratio o% when compared with industry a#erage< Gowe#er they are higher than their top ) competitors< W9 "trategies 1 Increase returns 'y e,panding the growing Waste8 to8energy and Gas8to8energy mar!ets >W),W-,W.,W4,91? ) DecentraliBe decisions in the glo'al operations>W1, W),93? 3 +,pand the sale o% recycled materials >W),W.,W4,9)?

9pportunities E "9 "trategies 9 1 2enewa'le +nergy 1 Continue to 2esources e,pand W*+ sites >"1,"),91? ) 2ecycling (rograms and e,pansion 3 Creation o% an e,panded glo'al presence - $tiliBe closed land%ills %or re#enue resources< ) De#elop recycling program awareness 3 >".,9)? +#aluate and (ursue e,pansion opportunities within the national 'oarders o% their glo'al mar!et >"3,"4, 93?

Waste Management Company Analysis 1))

*hreats 8 * 1 Go#ernment regulations ) GD( o% only 1I 3 6uel (rice Increases - Merger tal!s 'etween Allied and 2epu'lic . Impending legal claims %or en#ironmental #iolations

"* "trategies 1 Continue to de#elop W*+ and en#ironmentally %riendly processes >"1, "1,".,91? ) Consider the possi'ility o% acAuiring 2epu'lic >"4,*-? 3

- +#aluate alternati#e re#enue generation techniAues %or e,isting assets >W),W-,9-? W* "trategies 1 De#elopment more processes to supply electricity >*),W)? ) Increase operating e%%iciency programs and close unpro%ita'le locations >*), *3,W3? 3 DecentraliBe Management so locations can react to en#ironmental changes >*-,W1? - Implement operating procedures to minimiBe ris! o% en#ironmental #iolations>*., W1?

Waste Management Company Analysis 1)3 Business De%inition Evolution o% the industr In the %uture, the waste management industry will continue to mo#e toward more renewa'le products and ser#ices< In 1111 the +(A erected #ery high 'arriers to entry into the disposal land%ill mar!et 'y enacting the "u'title D regulations< *he permitting process in#ol#es the in#estment o% K). to K100 million Cust to see! an operating permit, and the process could ta!e up to ten years or more to complete< *his e%%ecti#ely limits the num'er o% waste land%ills in the $nited "tates< As an answer to the %uture limited land%ill space, go#ernments, waste companies, product companies, and consumers will ha#e to de#ise alternati#es to the current model o% waste production and waste disposal >M"W Management, )001?< Waste Management will need to continue their %ocus on en#ironmentally %riendly practices and maintain there compliance with go#ernmental permit regulations< *hey will need to continue their acAuirement o% new competencies in en#ironmental disposal and recycling programs, to minimiBe their impact on the en#ironment< *hey will also continue to ma!e customer ser#ice process impro#ements and change to meet the needs o% the growing customer segments<

Waste Management Company Analysis 1)$he "uture o% #aste Management3 New Products0Services As the leader in waste collection, Waste Management will ha#e to e,pand its presence in waste8'ased energy production< *o accomplish this Waste Management will ha#e to e,pand their partnerships with go#ernments, to de#elop new waste8to8energy plants and gas8to8energy >land%ill gas? proCects< In addition, it is anticipated that Waste Management will need to signi%icantly increase its capacity to process recycla'le materials< While Waste Management has instituted a single stream process that has increased capacity %or local recycling programs, it is o'#ious that more recycling plants will 'e needed in the %uture< Waste Management will also need to implement research and de#elopment to e,plore the possi'ility recycling other materials< It may 'e that they can e,pand the list o% items that can 'e recycled and reused success%ully< *his would signi%icantly increase the amount o% products Waste Management can pro#ide and increase the li%e o% their land%ills< 6inally, %or Waste Management to remain success%ul it will need to continue its relentless e%%orts in the area o% cost reduction< Waste Management should continue to e,pand its use o% natural gas in their %leet truc!s< *he company is already e,pecting to in#est up to K.00 million per year, o#er the ne,t ten years to increase the %uel e%%iciency and emission o% their %leet 'y 1.I >Waste Management Annual 2eport, )005?<

Waste Management Company Analysis 1). "uture Customers Waste Management should continue to !eep its current 'ase o% customers and operating segments< Waste ManagementHs current re#enue segments include collection, land%ill, trans%er, recycling, and waste8to8energy< *hey will still %ocus on municipalities, industrial, commercial, and residential customers< It is anticipated that Waste Management will mo#e %urther into the areas o% recycling, and waste8to8energy as America mo#es toward a goal o% Bero waste< *his could lead to a slight increase in commercial or industrial customers see!ing more en#ironmentally %riendly solutions< 6urther growth and re#enue increases, in the collection segment, will come %rom identi%ying those mar!ets that will pro#ide higher pro%it margins, and %rom acAuisitions and@or mergers< *here is also the possi'ility that Waste Management could see an increase in its land%ill re#enue, as tipping %ees will li!ely increase as other companyHs land%ills %ill to capacity< Ma4or Competitors *he waste management industry is made up primarily o% three companiesD Waste Management Inc<, Allied Waste Industries, and 2epu'lic "er#ices< Waste Management has the largest mar!et share at )1I, %ollowed 'y Allied Waste at 13I, and 2epu'lic "er#ices has a 5I share o% the industry mar!et< *his can 'e seen in 6igure )3<

Waste Management Company Analysis 1)4

Industry Mar!et "hare

)1I .1I 13I 5I WMI AW 2"G 9thers

6igure )3 (llied #aste Industries, Inc+ .(#/ Allied Waste Industries, Inc< operates as a non8haBardous solid waste management company in the $nited "tates and (uerto 2ico< *he company pro#ides collection, trans%er, recycling, and disposal ser#ices %or residential, commercial, and industrial customers< Allied Waste Industries is currently the num'er two waste management company and is headAuartered in (hoeni,, AriBona >www<%inance<yahoo<com@ANsOAW?< Repu*lic Services, Inc+ .RSG/ 2epu'lic "er#ices, Inc< pro#ides non8haBardous solid waste collection and disposal ser#ices %or commercial, industrial, municipal, and residential customers in the $nited "tates< It is currently ran!ed as the num'er three waste management company in

Waste Management Company Analysis 1)5 the $nited "tates< 2epu'lic "er#ices, Inc< was %ounded in 1114 and is headAuartered in 6ort 7auderdale, 6lorida< >www<%inance<yahoo<com@ANs@2"G? Possi*le Merger and (c1uisitions In une )000 2epu'lic "er#ices made a 'id to purchase

Allied Waste %or appro,imately K4<05 'illion to which Allied Waste accepted the o%%er, pending shareholder and regulatory appro#al< In response, on uly 1-, )000, Waste Management made a

K4<) 'illion o%%er %or 2epu'lic "er#ices< *his o%%er was a ))I premium o#er 2epu'lic "er#icesH closing price on 6riday, 11, )000< 9n uly

uly 10, )000, 2epu'lic "er#ices decided not to

enter merger negotiations with Waste Management, 'ecause management decided that the proposal would not result in a more %a#ora'le transaction %or its shareholders than the merger with Allied Waste >"martMoney, )000?< 2epu'lic "er#ices and Allied Waste are mo#ing their merger plans %orward 'y hiring Deloitte Consulting, 77( to ad#ise them in their merger integration planning >Gouston, )000?<9n uly )-, )000, Waste Management

announced that it will see! to 'uy shares o% 2epu'lic "er#ices >FahooQ, )000?< *his merger has a tremendous e%%ect on the competitors in the %uture< I% these two %irms merge their assets will 'e com'ined to pro#ide an eAui#alent siBe opponent to Waste Management< We %eel that these opponents, along with %irms that

Waste Management Company Analysis 1)0 pursue en#ironmentally %riendly strategies, will 'e our maCor competitors< 9'Cecti#es Revenue0Sales Waste Management will generate a#erage annual sales growth o% )<.I %or the ne,t - years< 5usti%ication Waste Management will see a re#enue increase )<.I per year primarily %rom its pricing initiati#es as well as higher recycling commodity pricing< It will see a decrease in collections %or )000 due to #olume declines primarily resulting %rom economic slowdowns in the residential and commercial 'uilding industries< 2e#enue %rom the collection line o% 'usiness is anticipated to increase in years )001 through )011 due to price increases >Annual 2eport, WMI, )005?< 2ecycling commodity pricing will continue to rise appro,imately 10I per year, contri'uting K.50 million o#er the %our year period<

Waste Management Company Analysis 1)1 *a'le .(roCected 2e#enue@"ales

*roCected Re4enue:Sales Collection !and"ill #rans"er Wheelabrator Rec$clin% and other (nterco05an$ #otal 2007 ?D7>' D0'7 >D65' ?6? >D2A? &2D27> > D >0 200? ?D656 2DA?6 >D620 ?7? >D'2? &>DA26 > D6'2 200A AD002 2DA76 >D5A6 ??7 >D5'2 &>DA?A >'D0>' 20>0 AD0A7 2DA?? >D6>6 ?A6 >D7>> &>DA75 >'D 20>> AD>?7 D0>0 >D6 5 A00 >D?76 &>A>7 >'D6A>

Net Income Waste Management will generate a#erage annual net income growth o% )<.I %or the ne,t %our years< 5usti%ication Waste Management will continue to increase its net income due to increases in re#enue %rom its recycling operation and %rom steady collection and land%ill %ees< Although collection re#enue will 'e modest, Waste Management has the capa'ility to increase its land%ill tipping %ees %rom local haulers< Dri#ing the increase in net income will 'e management insistence on decreases in its operating e,penses, primarily %uel e,penses through the continued e%%orts to change its %leet %rom diesel to natural gas, as well as lowering its wor!8related inCuries through its Bero accident campaign >Annual 2eport, WMI, )005?<

Waste Management Company Analysis 130 *a'le .. (roCected &et Income

*roCected .et (nco0e 2007 >D>6 200? >D>A2 200A >D22> 20>0 >D252 20>> >D2?

Market Share Waste Management will e,pand its mar!et share 'y 3I o#er the ne,t %our years< 5usti%ication Gains in mar!et share in this industry ha#e traditionally 'een the result o% consolidation, mergers, and acAuisitions< Gowe#er, as the leader in renewa'le waste8'ased energy production and recycla'le materials, Waste Management stands to increase its current mar!et share o% )1I< Waste Management must increase its #olume o% recycla'le materials through the de#elopment o% new recycling plants, acAuiring e,isting companies that own recycling %acilities, or e,panding the capa'ilities at its e,isting %acilities< Waste Management has recently made a 'id to 'uy 2epu'lic "er#ices, 'ut the 'id was re%used 'y 2"G< Waste Management has made it clear that it intends to 'uy shares o% 2epu'lic "er#ices in the %uture< *his will no dou't 'ring an anti8trust issue in to play that will ha#e to 'e addressed<

Waste Management Company Analysis 131 Waste Management will increase its total mar!et share 'y in#esting in alternati#e energy sources, including 'oth land%ill gas8to8energy and waste8to8energy com'ustors< Alternati#es As the industry leader, Waste Management Inc< has the %inancial resources and human capital, to e,plore alternati#e means o% growth that stretch their current operations< *rends in the industry are mo#ing toward an increased %ocus on en#ironmentally %riendly operations< As go#ernment regulations continue to increase, the industry is continually mo#ing toward more en#ironmentally %riendly operations and processes< Consumers are more aware o% the en#ironment and are demanding energy resources that do the least amount o% harm to the en#ironment< Waste Management can use this to their ad#antage in a num'er o% di%%erent ways, which will not only allow them to increase mar!et share, net income, and re#enues, 'ut it will also impro#e their image among society< In the idea generation process %or alternati#es, the core competencies, e,isting assets, and %uture o% the industry were all considered< Waste Management already has an enormous asset 'ase, %rom which to draw upon %or alternati#es< We %eel the merger o% Allied Waste and 2epu'lic will %orce Waste Management to loo! at acAuisitions, in order to gain mar!et share in the waste disposal segment< Gowe#er, should they choose, we %eel

Waste Management Company Analysis 13) they can #enture into the %ollowing alternati#es to grow their presence in other mar!ets and support their current mar!et presence< *he three alternati#es that we generated include: 1< +nter the 'uilding industry using their own recycled products< )< In#est in solar panels to run their gar'age disposal plants and %acilities< 3< (lace windmills on closed land%ills to produce energy to sell to consumers< *hese alternati#es are uniAue in that they could all 'e used simultaneously with e,isting assets, i% Waste Management %ound the alternati#e to 'e pro%ita'le< Gi#en the current trend o% consumers placing a great amount o% weight on 'eing en#ironmentally responsi'le, these alternati#es could help them achie#e their o'Cecti#es to increase mar!et share 'y 3I, net income 'y )<.I, and re#enues 'y )<.I, o#er the ne,t %our years< Although Waste Management is %eeling increased pressure %rom the competition, including a merger 'etween the num'er two and three companies, we %eel that Waste Management can still achie#e these o'Cecti#es< De#oting research and de#elopment e%%orts to these alternati#es, right away, will allow Waste Management to 'e success%ul in its endea#ors to Rthin! outside the 'o,R, and pro#ide a uniAue way to outpace the competition<

Waste Management Company Analysis 133 !uilding Materials *he %irst alternati#e Waste Management can e,plore to achie#e these o'Cecti#es, is to #enture into the 'uilding industry using recycled products such as plastic, glass, and aluminum as components o% 'uilding materials< *hey would 'e the %irst8mo#er, among Waste Management companies, to #enture into this operation< *his would gi#e them an edge o#er competitors who enter later< Waste Management already promotes en#ironmentally %riendly practices and proceduresD and this would only %urther impro#e their image with customers, as well as gi#e them a source o% di#ersi%ication to increase net income and re#enues< *here are two paths that Waste Management could e,plore under this option< *he %irst is generating the recycled materials to sell or utiliBing the materials to enter the 'uilding mar!et< In the home 'uilding industry, Waste Management will 'e a'le to compete, not 'y 'eing the 'est home 'uilder necessarily, 'ut 'y 'eing the most en#ironmentally conscious home 'uilder< Waste Management can maintain a low cost 'asis 'ecause all o% its 'uilding materials will 'e RdonatedR in the %orm o% waste< *his gi#es them a maCor competiti#e ad#antage o#er other home 'uilders, as they compete %or mar!et share in this emerging industry< "elling houses gi#es Waste Management a

tangent to e,plore that is away %rom their normal operations,

Waste Management Company Analysis 13'ut is still aided 'y their normal acti#ities o% recycling< +nsuring that these houses are 'uilt Auic!ly and e%%iciently, as well as ma!ing them energy star certi%ied should ma!e this alternati#e a success%ul way to 'oost sales >Balogh, nd<?< *he other path is to simply sell the products on the open mar!et to home 'uilders< While this is more in line with Waste ManagementHs current operations, this is a #ia'le 'ac!up, should the 'uilding industry 'e unattracti#e< *his strategy is unli!e any strategy the competitors ha#e< *his alternati#e will ena'le Waste Management to grow mar!et share in other industries, increase the re#enues 'rought in, and increase net income through the use o% e,isting assets< Solar Panels Another alternati#e %or Waste Management to consider is to in#est in solar panels to run their gar'age disposal plants< I% Waste Management could %ind a way to run their plants %ull8time using only the power o% the sun, they would not only 'ecome an icon in their industry, 'ut they would 'e glo'ally recogniBed< Again, this option would increase re#enues 'y adding sales o% those consumers that are the most worried a'out the health o% the en#ironment< *his will also increase the %irmsH net pro%it, 'y creating reduced costs %or utilities< *his alternati#e could also generate growth, 'y drawing in customers who are concerned with the en#ironmental impacts o% %irms<

Waste Management Company Analysis 13. 9ther alternati#es using solar panels include the con#ersion o% Waste Managements %leet to run o%% o% solar power< When ta!ing into account all the costs that are incurred 'y Waste Management companies, the use o% gasoline and diesel hurts their 'ottom line more than anything else< A company that is spending most o% its earnings to %uel its operations cannot 'e success%ul in adding e,plosi#e growth to its net income< $sing the energy o% the sun is %ree to any company that can success%ully harness it, and would 'e worth the short8term e,penditure to in#est in these solar panels< As %uel prices constantly rise, Waste Management companies will all 'e loo!ing %or a solution that will ena'le them to operate at a cost low enough to turn a pro%it< Waste Management can generate higher returns i% the process can 'e per%ected %or their %leet< *heir competitors will literally 'urn their pro%it up as gas prices rise< *hese alternati#es are also uniAue %or the company 'ecause no other waste management company has e,plored the use o% alternati#e energy sources to operate their %leet< #indmill Energ Generation

:eeping the same theme o% alternati#e energy and en#ironmentally %riendliness, the third option Waste Management should loo! into is placing windmills on their closed land%ills, in order to create electricity< &ot only could Waste Management use the electricity to help operate its own plants, 'ut Waste

Waste Management Company Analysis 134 Management could actually #enture into selling this energy as any power company would< *he windmills could 'e made o% recycled material and the wind certainly would 'e a %ree resource that Waste Management would ne#er run out o%< Windmills are Cust starting up as a #ia'le means o% creating electricity and the time to create windmill %arms is now< In order to maintain as well as create 'rand awareness, Waste Management would still operate this section o% its 'usiness under the Waste Management 'rand name< *his would gi#e Waste Management a chance to increase re#enues and net income 'y not only ma!ing money o%% o% materials e,iting the home, 'ut now they would 'e a'le to sale a ser#ice that goes into the home as well< *his essentially gi#es Waste Management the opportunity to create Rtwo8in8oneR customers as 'oth waste and power ser#ices would 'e a#aila'le to all households >*he "ustaina'le 2esource Guide, )005?< Alternati#e (ros / Cons !uilding Materials 9% course the positi#e aspects o% this alternati#e are the potential to increase re#enues, net income, and mar!et share, while prolonging the li%e o% land%ill assets< *his alternati#e opens8up a largely untapped re#enue 'ase %or the company< *he negati#es include economic downturns in the 'uilding industry and the potential o% the process to reAuire more asset

Waste Management Company Analysis 135 acAuirement to produce the products< Solar Panels *he positi#e aspects o% this alternati#e are the increased cost sa#ings to the company and potential acAuirement o% en#ironmentally %ocused customers< *he negati#es come down to the costs in#ol#ed in acAuiring and setting up the plant to use the panels< *here could also 'e signi%icant research and de#elopment costs to create the technology to con#ert the %leet o#er to solar power< #indmill Energ Generation

*he positi#e aspects o% this alternati#e are the increased costs sa#ings, new re#enue potential, and increase in net income< *he negati#e aspects include the costs in#ol#ed with acAuiring the assets to harness and transport the energy< In summary, these alternati#es would 'e relati#ely uniAue to Waste Management< *hey would pro#ide them with increased opportunities to cut costs, increase re#enues, increase mar!et share, and increase net income< *he alternati#es would pro#ide Waste Management with entry into a relati#ely untapped mar!et< *hese alternati#es ha#e the potential to 'ring a'out a dynamic change %or Waste Management< Gowe#er, they also ha#e some draw'ac!s that need to 'e ta!en into consideration< *he e,ploration into these alternati#es will largely 'e in uncharted territories, in which Waste Management has ne#er #entured

Waste Management Company Analysis 130 'e%ore< It will 'ring a'out the addition o% di%%ering !inds o% employees, added costs, and the ris! o% %ailure< I% one o% the alternati#es were to %ail, Waste Management could more than li!ely continue operations with no #isi'le pro'lems, 'ut i% two or all three were to %ail, the conseAuences could 'e disastrous< Gowe#er, the opportunity to outpace the competition is worth ta!ing the chance o% ha#ing to deal with the cons that go along with these alternati#es< 2ecommendations In order to achie#e Waste ManagementHs o'Cecti#es, we recommend that Waste Management tries a mi,ture o% all three alternati#es, as opposed to using only one< 9ne positi#e %actor a'out the alternati#es is that they can stand on their own or they can 'e used together to ma!e e#en more o% an impact< +ach alternati#e would a%%ect the o'Cecti#es in their own way, 'ut when the right mi,ture o% each is used, the o'Cecti#es 'ecome much more realistic to achie#e< In deciding to utiliBe all o% these alternati#es, we e#aluated the current and %uture industry en#ironment< (ricing and cost e%%iciency are two maCor %actors in the industry currently< All o% these alternati#es utiliBe, to a large e,tent, assets Waste Management already owns< *hese alternati#es also ha#e the possi'ility o% creating costs e%%iciencies %or the company< *hey are also #ery cogniBant o% industry trends toward

Waste Management Company Analysis 131 en#ironmental consciousness< I% Waste Management e,plored each alternati#e, they would %irst and %oremost create an image o% one that is socially responsi'le< *his would set the stage %or an increase in net income, re#enues, and mar!et share< Building houses and selling power would increase re#enues, as well as net income, and in#esting in solar panels would lower costs, %urther creating a surge in net income< *ogether, all o% these would steal mar!et share and %urther solidi%y Waste ManagementHs position as the industry leader< It is possi'le that they could also ward o%% threats, li!e the merger o% maCor competitors, i% they were to capture e#en more mar!et share through these alternati#es< In addition, o#er the ne,t %i#e years there will only 'e %urther pressure to pursue en#ironmentally %riendly operations< *hose companies that are percei#ed to e%%iciently achie#e these goals will 'e the ones who earn customer loyalty and ha#e the potential to open up new mar!ets< +ach o% these alternati#es ser#es as a way to impro#e the image o% Waste Management o#er other companies in the industry< *his aspect 'y itsel% will contri'ute a great deal to achie#ing the o'Cecti#es set %orth o#er the ne,t %i#e years<

Waste Management Company Analysis 1-0 Implementation Considerations *here are also se#eral %actors that Waste Management must ta!e into consideration when trying to implement a mi, o% these three alternati#es< Most o% the issues that would arise %rom implementing these alternati#es would 'e similar, 'ecause they are all pointed relati#ely in the same direction< 9'ser#ing a

%ew di%%erent aspects and challenges that may arise during implementation o% these alternati#es will allow Waste Management to 'etter understand the most e%%ecti#e ways to #enture into these new proCects< Setting 6nreasona*le Expectations *he %irst pit%all that must 'e a#oided when implementing new alternati#es is to a#oid setting your goals and e,pectations too high< We 'elie#e the o'Cecti#es o% 3I growth in mar!et share, and )<.I in net income, as well as re#enues o#er %our years is not only %easi'le, 'ut it is well in line with our alternati#es< By not ma!ing its e,pectations unreasona'le, Waste Management can %ocus on steady growth and ta!ing the time to ma!e the correct decisions, in order to implement these alternati#es e%%ecti#ely< "etting the 'ar too high when e,perimenting with new alternati#es will only ser#e to lower employee morale 'y 'eing too demanding, losing re#enues 'y not wor!ing e%%iciently, and essentially losing mar!et share 'ecause so much time, e%%ort, and money is tied up in the alternati#e<

Waste Management Company Analysis 1-1 Elastic !usiness De%inition 9ne aspect o% demand %or these new alternati#eSs outputs is that it will 'e relati#ely elastic< *hat is, as the price goes up %or these new ser#ices, the demand will tend to go down< Waste Management must realiBe that although people are concerned a'out the en#ironment, they will 'e unwilling to pay unreasona'le amounts regardless o% the en#ironmental impact< It will 'e a necessity that Waste Management is a'le to 'e pro%ita'le %rom these alternati#es without raising prices so much that customers will 'e unwilling to do 'usiness with them< Creation o% a Cause, Not a !usiness Becoming a company that is constantly aware o% its en#ironmental impact does not need to ta!e priority o#er ma!ing a pro%it< *he 'ottom line is that companies are in 'usiness to turn a pro%it in order to sustain growth and satis%y shareholders< Waste Management must 'e care%ul with using these alternati#es only as a cause to 'etter the en#ironment, and they must insure that these alternati#es are #ia'le 'usiness options as well< Waste Management must not get caught up in simply operating %or the en#ironmentSs sa!e, 'ut they must also %ocus these alternati#es as ways to ma!e e#er8increasing pro%its<

Waste Management Company Analysis 1-) New 7oices When attempting to implement these alternati#es, Waste ManagementHs management must encourage input %rom its employees on ways to success%ully adopt these new e,periments< According to Gary Gamel, there are three places that Waste Management should loo!, in order to hear the most inno#ati#e ideas that could help Waste Management ma!e a smooth and pro%ita'le transition into these alternati#es< Waste Management should loo! to its younger employees or anyone with a youth%ul outloo!D employees near the geographic areas, 'ecause they usually ha#e %ewer resources and are mo#e creati#eD and newcomers who o%%er a %resh new perspecti#e on the situation< +ncouraging input %rom all these sources will pro%it Waste Management 'y allowing it to gain insight %rom a di#erse group with %resh, new ideas >$nited Bit, )000?< )pen Market %or Capital and $alent When initially trying to implement these new proCects, Waste Management must not limit their own opportunities 'y deciding to spend only a certain amount on these alternati#es< I% Waste Management is serious a'out 'eing an inno#ati#e leader, they must ma!e the necessary sacri%ices in order to push through any di%%iculties and gi#e these alternati#es e#ery chance to succeed< Also, these new proCects are going to reAuire some o%

the most !nowledgea'le, intelligent human capital that Waste

Waste Management Company Analysis 1-3 Management can %ind< *he company must create an atmosphere that will not only attract top talent, 'ut also one that will maintain this talent< In order to do this, Waste Management must create a wor! en#ironment that promotes e,perimentation and inno#ation, while also compensating their employees at a le#el as good as or 'etter than the employee could %ind elsewhere< &ow Risk Experimentation By trying to implement a mi,ture o% all three o% these alternati#es, Waste Management gi#es itsel% a cushion when it comes to the ris! in#ol#ed in each< I% one alternati#e is clearly not going to wor!, Waste Management can a'andon this operation and %ocus e#en more o% its e%%orts onto the other two< *hese alternati#es certainly wonSt 'e accomplished without ta!ing on some ris!, 'ut Waste Management has esta'lished enough %inancing that a loss wouldnSt 'e totally crippling to its operations< *he main aspect o% ris! that Waste ManagementHs management must !eep in mind is that the realiBation o% when one o% the alternati#es isnHt going to wor! out, and 'e willing to put a stop to it 'e%ore too much money is lost< Cellular Division *he last aspect o% implementation that Waste Management must ta!e into consideration when loo!ing at these alternati#es is cellular di#ision< 2ight now, Waste Management has mainly %ocused on its core competency, and has yet to stretch itsel%

Waste Management Company Analysis 1-out in order to e,periment with alternati#es that are Routside the 'o,<R *hese alternati#es gi#e Waste Management a chance to di%%erentiate and di#ersi%y its 'usiness operations< Instead o% 'ecoming a stagnant company, these alternati#es will yield results not only with net income, re#enues, and mar!et share, 'ut they will also promote a company8wide attitude o% growth and inno#ation< >$nited Bit, )000? In summary Waste Management should care%ully e#aluate each alternati#e %or #ia'ility and strategic possi'ilities< *hey should !eep a close watch on mar!et trends and respond accordingly, in order to maintain and increase mar!et share< *hey should decide on the course o% action that will help them meet their growth, re#enue, and net income o'Cecti#es, as well as pro#ide the %irm with long8term pro%ita'ility<

Waste Management Company Analysis 1-. 2e%erences

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