UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended ~~September~~June 30, ~~2020~~2021

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission file number 1-12154

Waste Management, Inc.

(Exact name of registrant as specified in its charter)


Delaware	73-1309529
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

~~1001 Fannin~~800 Capitol Street

Suite 3000

Houston, Texas 77002

(Address of principal executive offices)

(713) 512-6200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	WM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer☑	☑	Accelerated filer ☐
Non-accelerated filer☐	☐	Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at ~~October 28, 2020~~July 22, 2021 was ~~422,606,194~~421,098,975 (excluding treasury shares of ~~207,676,267)~~209,183,486).

PART I.

Item 1. Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Millions, Except Share and Par Value Amounts)


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
	(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	703	$	3,561	$	148	$	553
Accounts receivable, net of allowance for doubtful accounts of $34 and $28, respectively		1,927		1,949
Other receivables, net of allowance for doubtful accounts of $6 and $1, respectively		290		370
Accounts receivable, net of allowance for doubtful accounts of $26 and $33, respectively						2,195		2,097
Other receivables, net of allowance for doubtful accounts of $9 and $7, respectively						450		527
Parts and supplies		117		106		126		124
Other assets		320		223		307		239
Total current assets		3,357		6,209		3,226		3,540
Property and equipment, net of accumulated depreciation and amortization of $19,266 and $18,657, respectively		12,846		12,893
Property and equipment, net of accumulated depreciation and amortization of $19,995 and $19,337, respectively						14,110		14,148
Goodwill		6,504		6,532		8,992		8,994
Other intangible assets, net		450		521		956		1,024
Restricted trust and escrow accounts		369		313		446		347
Investments in unconsolidated entities		425		483		417		426
Other assets		821		792		890		866
Total assets	$	24,772	$	27,743	$	29,037	$	29,345
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	884	$	1,065	$	1,393	$	1,121
Accrued liabilities		1,259		1,327		1,372		1,342
Deferred revenues		496		534		557		539
Current portion of long-term debt		167		218		361		551
Total current liabilities		2,806		3,144		3,683		3,553
Long-term debt, less current portion		10,255		13,280		12,883		13,259
Deferred income taxes		1,468		1,407		1,744		1,806
Landfill and environmental remediation liabilities		2,037		1,930		2,299		2,222
Other liabilities		1,049		912		1,074		1,051
Total liabilities		17,615		20,673		21,683		21,891
Commitments and contingencies
Commitments and contingencies (Note 6)
Equity:
Waste Management, Inc. stockholders’ equity:
Common stock, $0.01 par value; 1,500,000,000 shares authorized; 630,282,461 shares issued		6		6		6		6
Additional paid-in capital		5,104		5,049		5,104		5,129
Retained earnings		10,952		10,592		11,444		11,159
Accumulated other comprehensive income (loss)		(16)		(8)		70		39
Treasury stock at cost, 207,695,158 and 205,956,366 shares, respectively		(8,891)		(8,571)
Treasury stock at cost, 209,467,208 and 207,480,827 shares, respectively						(9,272)		(8,881)
Total Waste Management, Inc. stockholders’ equity		7,155		7,068		7,352		7,452
Noncontrolling interests		2		2		2		2
Total equity		7,157		7,070		7,354		7,454
Total liabilities and equity	$	24,772	$	27,743	$	29,037	$	29,345

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Millions, Except per Share Amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Operating revenues

$
3,861

$
3,967

$
11,151

$
11,609
Costs and expenses:





Operating

2,332

2,441

6,841

7,182
Selling, general and administrative

416

386

1,218

1,186
Depreciation and amortization

419

404

1,235

1,179
Restructuring

7

1

9

3
(Gain) loss from divestitures, asset impairments and unusual items, net

7

1

68

8

3,181

3,233

9,371

9,558
Income from operations

680

734

1,780

2,051
Other income (expense):



Interest expense, net

(97)

(105)

(328)

(301)
Loss on early extinguishment of debt

(52)

(1)

(52)

(85)
Equity in net losses of unconsolidated entities

(16)

(14)

(56)

(39)
Other, net

1

1

2

(52)

(164)

(119)

(434)

(477)
Income before income taxes

516

615

1,346

1,574
Income tax expense

126

120

288

350
Consolidated net income

390

495

1,058

1,224
Less: Net income (loss) attributable to noncontrolling interests

—

—

—

1
Net income attributable to Waste Management, Inc.

$
390

$
495

$
1,058

$
1,223
Basic earnings per common share

$
0.92

$
1.17

$
2.50

$
2.88
Diluted earnings per common share

$
0.92

$
1.16

$
2.49

$
2.86


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Operating revenues	$	4,476	$	3,561	$	8,588	$	7,290
Costs and expenses:
Operating		2,736		2,180		5,250		4,509
Selling, general and administrative		445		377		903		802
Depreciation and amortization		500		414		972		816
Restructuring		4		2		5		2
(Gain) loss from divestitures, asset impairments and unusual items, net		—		61		17		61
		3,685		3,034		7,147		6,190
Income from operations		791		527		1,441		1,100
Other income (expense):
Interest expense, net		(98)		(119)		(195)		(231)
Loss on early extinguishment of debt		(220)		—		(220)		—
Equity in net losses of unconsolidated entities		(11)		(14)		(20)		(40)
Other, net		(6)		1		(5)		1
		(335)		(132)		(440)		(270)
Income before income taxes		456		395		1,001		830
Income tax expense		105		88		229		162
Consolidated net income		351		307		772		668
Less: Net income (loss) attributable to noncontrolling interests		—		—		—		—
Net income attributable to Waste Management, Inc.	$	351	$	307	$	772	$	668
Basic earnings per common share	$	0.83	$	0.73	$	1.83	$	1.58
Diluted earnings per common share	$	0.83	$	0.72	$	1.82	$	1.57

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Millions)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Consolidated net income

$
390

$
495

$
1,058

$
1,224
Other comprehensive income (loss), net of tax:








Derivative instruments, net

4

2

9

6
Available-for-sale securities, net

2

4

7

13
Foreign currency translation adjustments

19

(17)

(23)

36
Post-retirement benefit obligations, net

—

—

(1)

(1)
Other comprehensive income (loss), net of tax

25

(11)

(8)

54
Comprehensive income

415

484

1,050

1,278
Less: Comprehensive loss attributable to noncontrolling interests

—

—

—

1
Comprehensive income attributable to Waste Management, Inc.

$
415

$
484

$
1,050

$
1,277


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021			2020
Consolidated net income	$	351	$	307	$	772		$	668
Other comprehensive income (loss), net of tax:
Derivative instruments, net		6		3		7			5
Available-for-sale securities, net		3		14		(2)			5
Foreign currency translation adjustments		13		34		26			(42)
Post-retirement benefit obligations, net		—		(1)		—			(1)
Other comprehensive income (loss), net of tax		22		50		31			(33)
Comprehensive income		373		357		803			635
Less: Comprehensive loss attributable to noncontrolling interests		—		—		—	��		—
Comprehensive income attributable to Waste Management, Inc.	$	373	$	357	$	803		$	635

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

(Unaudited)

Nine Months Ended

September 30,


2020

2019
Cash flows from operating activities:




Consolidated net income

$
1,058

$
1,224
Adjustments to reconcile consolidated net income to net cash provided by operating activities:


Depreciation and amortization

1,235

1,179
Deferred income tax benefit

61

29
Interest accretion on landfill liabilities

75

72
Provision for bad debts

40

27
Equity-based compensation expense

74

62
Net gain on disposal of assets

(10)

(19)
(Gain) loss from divestitures, asset impairments and other, net

76

79
Equity in net losses of unconsolidated entities, net of dividends

48

39
Loss on early extinguishment of debt

52

85
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:




Receivables

76

(2)
Other current assets

(47)

(52)
Other assets

41

7
Accounts payable and accrued liabilities

(62)

213
Deferred revenues and other liabilities

(67)

(91)
Net cash provided by operating activities

2,650

2,852
Cash flows from investing activities:




Acquisitions of businesses, net of cash acquired

(3)

(513)
Capital expenditures

(1,238)

(1,532)
Proceeds from divestitures of businesses and other assets (net of cash divested)

20

29
Other, net

(20)

(80)
Net cash used in investing activities

(1,241)

(2,096)
Cash flows from financing activities:




New borrowings

231

4,558
Debt repayments

(3,942)

(502)
Premiums paid on early extinguishment of debt

(30)

(84)
Net commercial paper borrowings (repayments)

597

(1,001)
Common stock repurchase program

(402)

(248)
Cash dividends

(696)

(658)
Exercise of common stock options

49

60
Tax payments associated with equity-based compensation transactions

(34)

(32)
Other, net

(17)

(13)
Net cash (used in) provided by financing activities

(4,244)

2,080
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents

1

1
(Decrease) increase in cash, cash equivalents and restricted cash and cash equivalents

(2,834)

2,837
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

3,647

183
Cash, cash equivalents and restricted cash and cash equivalents at end of period

$
813

$
3,020

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period:

Cash and cash equivalents

$
703

$
2,915
Restricted cash and cash equivalents included in other current assets

42

31
Restricted cash and cash equivalents included in restricted trust and escrow accounts

68

74
Cash, cash equivalents and restricted cash and cash equivalents at end of period

$
813

$
3,020


	Six Months Ended
	June 30,
	2021		2020
Cash flows from operating activities:
Consolidated net income	$	772	$	668
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		972		816
Deferred income tax benefit		(67)		(35)
Interest accretion on landfill liabilities		53		49
Provision for bad debts		17		36
Equity-based compensation expense		45		23
Net gain on disposal of assets		(12)		(7)
Loss from divestitures, asset impairments and other, net		17		68
Equity in net losses of unconsolidated entities, net of dividends		22		33
Loss on early extinguishment of debt		220		—
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Receivables		(24)		185
Other current assets		(22)		(1)
Other assets		9		14
Accounts payable and accrued liabilities		213		(171)
Deferred revenues and other liabilities		(52)		(57)
Net cash provided by operating activities		2,163		1,621
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(10)		(1)
Capital expenditures		(666)		(895)
Proceeds from divestitures of businesses and other assets, net of cash divested		17		15
Other, net		(49)		(37)
Net cash used in investing activities		(708)		(918)
Cash flows from financing activities:
New borrowings		1,707		—
Debt repayments		(2,326)		(705)
Premiums and other paid on early extinguishment of debt		(211)		—
Common stock repurchase program		(500)		(402)
Cash dividends		(489)		(466)
Exercise of common stock options		41		42
Tax payments associated with equity-based compensation transactions		(28)		(34)
Other, net		(4)		(10)
Net cash used in financing activities		(1,810)		(1,575)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents		4		(3)
Decrease in cash, cash equivalents and restricted cash and cash equivalents		(351)		(875)
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		648		3,647
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	297	$	2,772

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period:
Cash and cash equivalents	$	148	$	2,663
Restricted cash and cash equivalents included in other current assets		56		41
Restricted cash and cash equivalents included in restricted trust and escrow accounts		93		68
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	297	$	2,772

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN EQUITY

(In Millions, Except Shares in Thousands)

(Unaudited)

Waste Management, Inc. Stockholders’ Equity

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Noncontrolling


Total

Shares

Amounts

Capital

Earnings

Income (Loss)

Shares

Amounts

Interests
Three Months Ended September 30:

2020

Balance, June 30, 2020

$
6,893

630,282

$
6

$
5,040

$
10,795

$
(41)

(208,118)

$
(8,909)

$
2
Consolidated net income

390

—

—

—

390

—

—

—

—
Other comprehensive income (loss), net of tax

25

—

—

—

—

25

—

—

—
Cash dividends declared of $0.545 per common share

(230)

—

—

—

(230)

—

—

—

—
Equity-based compensation transactions, net

80

—

—

64

(2)

—

422

18

—
Common stock repurchase program

—

—

—

—

—

—

—

—

—
Other, net

(1)

—

—

—

(1)

—

1

—

—
Balance, September 30, 2020

$
7,157

630,282

$
6

$
5,104

$
10,952

$
(16)

(207,695)

$
(8,891)

$
2

2019

Balance, June 30, 2019

$
6,467

630,282

$
6

$
4,962

$
10,088

$
(22)

(206,482)

$
(8,568)

$
1
Consolidated net income

495

—

—

—

495

—

—

—

—
Other comprehensive income (loss), net of tax

(11)

—

—

—

—

(11)

—

—

—
Cash dividends declared of $0.5125 per common share

(218)

—

—

—

(218)

—

—

—

—
Equity-based compensation transactions, net

53

—

—

28

(1)

—

613

26

—
Common stock repurchase program

—

—

—

36

—

—

(254)

(36)

—
Other, net

1

—

—

—

—

—

1

—

1
Balance, September 30, 2019

$
6,787

630,282

$
6

$
5,026

$
10,364

$
(33)

(206,122)

$
(8,578)

$
2


			Waste Management, Inc. Stockholders’ Equity
										Accumulated
						Additional				Other
			Common Stock			Paid-In		Retained		Comprehensive		Treasury Stock			Noncontrolling
	Total		Shares	Amounts		Capital		Earnings		Income (Loss)		Shares	Amounts		Interests
Three Months Ended June 30:
2021
Balance, March 31, 2021	$	7,429	630,282	$	6	$	5,071	$	11,337	$	48	(208,201)	$	(9,035)	$	2
Consolidated net income		351	—		—		—		351		—	—		—		—
Other comprehensive income (loss), net of tax		22	—		—		—		—		22	—		—		—
Cash dividends declared of $0.575 per common share		(242)	—		—		—		(242)		—	—		—		—
Equity-based compensation transactions, net		44	—		—		33		(2)		—	310		13		—
Common stock repurchase program		(250)	—		—		—		—		—	(1,576)		(250)		—
Other, net		—	—		—		—		—		—	—		—		—
Balance, June 30, 2021	$	7,354	630,282	$	6	$	5,104	$	11,444	$	70	(209,467)	$	(9,272)	$	2

2020
Balance, March 31, 2020	$	6,745	630,282	$	6	$	5,026	$	10,718	$	(91)	(208,287)	$	(8,916)	$	2
Consolidated net income		307	—		—		—		307		—	—		—		—
Other comprehensive income (loss), net of tax		50	—		—		—		—		50	—		—		—
Cash dividends declared of $0.545 per common share		(230)	—		—		—		(230)		—	—		—		—
Equity-based compensation transactions, net		21	—		—		14		—		—	169		7		—
Common stock repurchase program		—	—		—		—		—		—	—		—		—
Other, net		—	—		—		—		—		—	—		—		—
Balance, June 30, 2020	$	6,893	630,282	$	6	$	5,040	$	10,795	$	(41)	(208,118)	$	(8,909)	$	2

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ─ (Continued)

(In Millions, Except Shares in Thousands)

(Unaudited)

Waste Management, Inc. Stockholders’ Equity

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Noncontrolling

Total

Shares

Amounts

Capital

Earnings

Income (Loss)

Shares

Amounts

Interests
Nine Months Ended September 30:

2020

Balance, December 31, 2019

$
7,070

630,282

$
6

$
5,049

$
10,592

$
(8)

(205,956)

$
(8,571)

$
2
Adoption of new accounting standard

(2)

—

—

—

(2)

—

—

—

—
Consolidated net income

1,058

—

—

—

1,058

—

—

—

—
Other comprehensive income (loss), net of tax

(8)

—

—

—

—

(8)

—

—

—
Cash dividends declared of $1.635 per common share

(696)

—

—

—

(696)

—

—

—

—
Equity-based compensation transactions, net

138

—

—

55

1

—

1,945

82

—
Common stock repurchase program

(402)

—

—

—

—

—

(3,687)

(402)

—
Other, net

(1)

—

—

—

(1)

—

3

—

—
Balance, September 30, 2020

$
7,157

630,282

$
6

$
5,104

$
10,952

$
(16)

(207,695)

$
(8,891)

$
2

2019

Balance, December 31, 2018

$
6,276

630,282

$
6

$
4,993

$
9,797

$
(87)

(206,299)

$
(8,434)

$
1
Consolidated net income

1,224

—

—

—

1,223

—

—

—

1
Other comprehensive income (loss), net of tax

54

—

—

—

—

54

—

—

—
Cash dividends declared of $1.5375 per common share

(658)

—

—

—

(658)

—

—

—

—
Equity-based compensation transactions, net

135

—

—

33

2

—

2,421

100

—
Common stock repurchase program

(244)

—

—

—

—

—

(2,247)

(244)

—
Other, net

—

—

—

—

—

—

3

—

—
Balance, September 30, 2019

$
6,787

630,282

$
6

$
5,026

$
10,364

$
(33)

(206,122)

$
(8,578)

$
2


			Waste Management, Inc. Stockholders’ Equity
										Accumulated
						Additional				Other
			Common Stock			Paid-In		Retained		Comprehensive		Treasury Stock			Noncontrolling
	Total		Shares	Amounts		Capital		Earnings		Income (Loss)		Shares	Amounts		Interests
Six Months Ended June 30:
2021
Balance, December 31, 2020	$	7,454	630,282	$	6	$	5,129	$	11,159	$	39	(207,481)	$	(8,881)	$	2
Consolidated net income		772	—		—		—		772		—	—		—		—
Other comprehensive income (loss), net of tax		31	—		—		—		—		31	—		—		—
Cash dividends declared of $1.15 per common share		(489)	—		—		—		(489)		—	—		—		—
Equity-based compensation transactions, net		86	—		—		25		2		—	1,399		59		—
Common stock repurchase program		(500)	—		—		(50)		—		—	(3,385)		(450)		—
Other, net		—	—		—		—		—		—	—		—		—
Balance, June 30, 2021	$	7,354	630,282	$	6	$	5,104	$	11,444	$	70	(209,467)	$	(9,272)	$	2

2020
Balance, December 31, 2019	$	7,070	630,282	$	6	$	5,049	$	10,592	$	(8)	(205,956)	$	(8,571)	$	2
Adoption of new accounting standard		(2)	—		—		—		(2)		—	—		—		—
Consolidated net income		668	—		—		—		668		—	—		—		—
Other comprehensive income (loss), net of tax		(33)	—		—		—		—		(33)	—		—		—
Cash dividends declared of $1.09 per common share		(466)	—		—		—		(466)		—	—		—		—
Equity-based compensation transactions, net		58	—		—		(9)		3		—	1,523		64		—
Common stock repurchase program		(402)	—		—		—		—		—	(3,687)		(402)		—
Other, net		—	—		—		—		—		—	2		—		—
Balance, June 30, 2020	$	6,893	630,282	$	6	$	5,040	$	10,795	$	(41)	(208,118)	$	(8,909)	$	2

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The financial statements presented in this report represent the consolidation of Waste Management, Inc., a Delaware corporation; its wholly-owned and majority-owned subsidiaries; and certain variable interest entities for which Waste Management, Inc. or its subsidiaries are the primary beneficiaries as described in Note 13. Waste Management, Inc. is a holding company and all operations are conducted by its subsidiaries. When the terms “the Company,” “we,” “us” or “our” are used in this document, those terms refer to Waste Management, Inc., its consolidated subsidiaries and consolidated variable interest entities. When we use the term “WM,” we are referring only to Waste Management, Inc., the parent holding company.

The Condensed Consolidated Financial Statements as of ~~September~~June 30, ~~2020~~2021 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are unaudited. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows, and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

In preparing our financial statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with precision from available data or simply cannot be calculated. In some cases, these estimates are difficult to determine, and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, long-lived asset impairments, the fair value of assets and liabilities acquired in business combinations or asset acquisitions and reserves associated with our insured and self-insured claims. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Revenue Recognition

We generally recognize revenue as services are performed or products are delivered. For example, revenue typically is recognized as waste is collected, tons are received at our landfills or transfer stations, or recycling commodities are collected or delivered as product. We bill for certain services prior to performance. Such services include, among others, certain commercial and residential contracts, and equipment rentals. These advance billings are included in deferred

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

revenues and recognized as revenue in the period service is provided. Substantially all our deferred revenues during the reported periods are realized as revenues within one to three months when the related services are performed.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Contract Acquisition Costs

Our incremental direct costs of obtaining a contract, which consist primarily of sales incentives, are generally deferred and amortized to selling, general and administrative expense over the estimated life of the relevant customer relationship, ranging from 5five to 13 years. Contract acquisition costs that are paid to the customer are deferred and amortized as a reduction in revenue over the contract life. Our contract acquisition costs are classified as current or noncurrent based on the timing of when we expect to recognize amortization and are included in other assets in our Condensed Consolidated Balance Sheet.

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ~~$160~~$170 million and ~~$153~~$159 million, respectively, of deferred contract costs, of which ~~$117~~$121 million ~~at each date was~~and $118 million, respectively, were related to deferred sales incentives. During each of the ~~three~~three- and ~~nine months~~six-month periods ended ~~September~~June 30, 2021 and 2020, we amortized $6 million and ~~$17~~$11 million, respectively, of sales incentives to selling, general and administrative expense, respectively. During the three and nine months ended September 30, 2019, we amortized $6 million and $17 million of sales incentives to selling, general and administrative expense, respectively.expense.

Leases

Amounts for our operating lease right-of-use assets are recorded in long-term other assets in our Condensed Consolidated Balance Sheets. The current and long-term portion of our operating lease liabilities are reflected in accrued liabilities and other long-term liabilities, respectively, in our Condensed Consolidated Balance Sheets. ~~Right-of-use assets obtained in exchange for lease obligations for our operating leases for the nine months ended September 30, 2020 and 2019 were $80 million and $146 million, respectively.~~ Amounts for our financing leases are recorded in property and equipment, net of accumulated depreciation, and current or long-term debt in our Condensed Consolidated Balance Sheets, as appropriate.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments held within our restricted trust and escrow accounts, and accounts receivable. We make efforts to control our exposure to credit risk associated with these instruments by (i) placing our assets and other financial interests with a diverse group of credit-worthy financial institutions; (ii) holding high-quality financial instruments while limiting investments in any one instrument and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures, although generally we do not have collateral requirements for credit extensions. We also control our exposure associated with trade receivables by discontinuing service, to the extent allowable, to non-paying customers. However, our overall credit risk associated with trade receivables is limited due to the large number and diversity of customers we serve.

~~Adoption of New Accounting Standards~~

Fi~~nancial Instruments-Credit Losses~~ — In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 associated with the measurement of credit losses on financial instruments. On January 1, 2020, we adopted this ASU using the modified retrospective transition method. The amended guidance replaced the previous incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. This expected loss model generally results in earlier recognition of an allowance for losses. We recognized a net $2 million after tax decrease to retained earnings as of January 1, 2020 for the cumulative impact of adopting the amended guidance.

Our receivables, which are recorded when billed, when services are performed or when cash is advanced, are claims against third parties that will generally be settled in cash. The carrying value of our receivables, net of the allowance for doubtful accounts, represents the estimated net realizable value. Past-due receivable balances are written off when our internal collection efforts have been unsuccessful. Also, we recognize interest income on long-term interest-bearing notes

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~receivable as the interest accrues under the terms of the notes. We no longer accrue interest once the notes are deemed uncollectible.~~

~~The following table reflects the activity in our allowance for doubtful accounts of trade receivables for the nine months ended September 30 (in millions):~~

2020

2019
Balance as of January 1,

$
28

$
29
Adoption of new accounting standard

(1)

—
Additions charged to expense

40

27
Accounts written-off, net of recoveries

(29)

(31)
Acquisitions, divestitures and other, net

(4)

2
Balance as of September 30,

$
34

$
27

For trade receivables the Company relies upon, among other factors, historical loss trends, the age of outstanding receivables, and existing as well as expected economic conditions. Due to the adoption of ASU 2016-13, we recognized a $1 million pre-tax decrease to our allowance for doubtful accounts on trade receivables. We determined that all of our trade receivables share similar risk characteristics. We monitor our credit exposure on an ongoing basis and assess whether assets in the pool continue to display similar risk characteristics.

In January 2020, a novel strain of coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern and subsequently declared a global pandemic in March 2020. Throughout the COVID-19 pandemic, the Company has proactively taken steps to put our employees’ and customers’ needs first and we continue to work with the appropriate regulatory agencies to ensure we can provide our essential waste services safely and efficiently. With this in mind, during the first half of 2020 we extended payment terms and postponed collections and discontinuing of service for customers who were negatively impacted by the COVID-19 pandemic which contributed to an increase in the aging of outstanding balances. During the third quarter, improved economic conditions allowed us to return to more regular business practices, in accordance with our contractual terms.

As of September 30, 2020, we had $1,927 million of trade receivables, net of allowance of $34 million. The allowance for doubtful accounts has increased by $6 million during 2020, largely due to the COVID-19 pandemic. Based on an aging analysis as of September 30, 2020, approximately 90% of our trade receivables were outstanding less than 60 days.

For other receivables as well as loans and other instruments, the Company relies primarily on credit ratings and associated default rates based on the maturity of the instrument. All receivables, as well as other instruments, are adjusted for our expectation of future market conditions and trends. Due to the adoption of ASU 2016-13, we recognized a $4 million pre-tax increase to our allowance for doubtful accounts on notes and other receivables. As of September 30, 2020, we had $453 million of notes and other receivables, net of allowance of $8 million. Based on an aging analysis as of September 30, 2020, approximately 65% of our other receivables were due within 12 months or less.

~~Implementation Costs Incurred in a Cloud Computing Arrangement~~ — In August 2018, the FASB issued ASU 2018-15 associated with a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Costs for implementation activities in the application development stage are capitalized as prepayments depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. The Company adopted this amended guidance on January 1, 2020 prospectively, and it did not have a material impact on our consolidated financial statements.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Guarantor Financial Information~~— In March 2020, the Securities and Exchange Commission (“SEC”) adopted final rules that simplify the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities (which we previously included within the notes to our financial statements included in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q) if certain conditions are met. The disclosure requirements, as amended, are now located in newly-created Rules 13-01 and 13-02 of Regulation S-X and are generally effective for filings on or after January 4, 2021, with early adoption permitted. We early adopted the new disclosure requirements effective as of April 1, 2020 and are providing the summarized financial information and related disclosures in Item 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~ ~~in this Form 10-Q.~~

Reclassifications

When necessary, reclassifications have been made to our prior period financial information to conform to the current year presentation and are not material to our consolidated financial statements. Our prior year accumulated depreciation and gross property and equipment balances as of December 31, 2020 were overstated and subsequently corrected in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Landfill and Environmental Remediation Liabilities

Liabilities for landfill and environmental remediation costs are presented in the table below (in millions):


	September 30, 2020						December 31, 2019						June 30, 2021						December 31, 2020
			Environmental						Environmental						Environmental						Environmental
	Landfill		Remediation		Total		Landfill		Remediation		Total		Landfill		Remediation		Total		Landfill		Remediation		Total
Current (in accrued liabilities)	$	102	$	27	$	129	$	138	$	27	$	165	$	129	$	26	$	155	$	138	$	26	$	164
Long-term		1,826		211		2,037		1,717		213		1,930		2,105		194		2,299		2,018		204		2,222
	$	1,928	$	238	$	2,166	$	1,855	$	240	$	2,095	$	2,234	$	220	$	2,454	$	2,156	$	230	$	2,386

The changes to landfill and environmental remediation liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 are reflected in the table below (in millions):

Environmental


Landfill

Remediation
December 31, 2019

$
1,855

$
240
Obligations incurred and capitalized

61


—
Obligations settled

(75)


(17)
Interest accretion

75


1
Revisions in estimates and interest rate assumptions (a) (b)

30


14
Acquisitions, divestitures and other adjustments (c)

(18)


—
September 30, 2020

$
1,928

$
238

~~(a)~~

The amount reported for our landfill liabilities includes (i) a $10 million increase in estimated construction costs for capping at certain landfills and (ii) an increase of $8 million due to a business decision to close one of our landfills, which resulted in the acceleration of the expected timing of capping, closure and post-closure activities. This business decision also resulted in an impairment that is discussed in Note 9.

~~(b)~~

The amount reported for our environmental remediation liabilities includes an increase of $12 million due to a decrease in the risk-free discount rate used to measure our liabilities from 1.75% at December 31, 2019 to 0.75% at September 30, 2020.

~~(c)~~

The amount reported for landfill liabilities includes the reclassification of $17 million to accrued liabilities in our Condensed Consolidated Balance Sheet related to certain landfills classified as held for sale as of September 30, 2020 in connection with the sale of the landfills to GFL Environmental Inc. The divestiture is directly related to the

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


			Environmental
	Landfill		Remediation
December 31, 2020	$	2,156	$	230
Obligations incurred and capitalized		57		—
Obligations settled		(44)		(9)
Interest accretion		53		1
Revisions in estimates and interest rate assumptions		11		(2)
Acquisitions, divestitures and other adjustments		1		—
June 30, 2021	$	2,234	$	220

~~Advanced Disposal, Inc. (“Advanced Disposal”) acquisition. These transactions are discussed further in Notes 8 and 14.~~

At several of our landfills, we provide financial assurance by depositing cash into restricted trust funds or escrow accounts for purposes of settling final capping, closure, post-closure and environmental remediation obligations. Generally, these trust funds are established to comply with statutory requirements and operating agreements. See Note 13 for additional information related to these trusts.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Debt ~~and Interest Rate Derivatives~~

The following table summarizes the major components of debt as of each balance sheet date (in millions) and provides the maturities and interest rate ranges of each major category as of ~~September~~June 30, ~~2020:~~2021:

September 30,

December 31,

2020

2019
Commercial paper program (weighted average interest rate of 0.5% as of September 30, 2020)

$
600

$
—
Senior notes, maturing through 2049, interest rates ranging from 2.4% to 7.75% (weighted average interest rate of 4.1% as of September 30, 2020 and 3.9% as of December 31, 2019)

6,365

9,965
Canadian senior notes, C$500 million maturing September 2026, interest rate of 2.6%

375

385
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 0.17% to 4.3% (weighted average interest rate of 1.9% as of September 30, 2020 and 2.3% as of December 31, 2019)

2,491

2,523
Financing leases and other, maturing through 2071, weighted average interest rate of 4.7%

651

710
Debt issuance costs, discounts and other

(60)

(85)

10,422

13,498
Current portion of long-term debt

167

218

$
10,255

$
13,280


	June 30,		December 31,
	2021		2020
Commercial paper program (weighted average interest rate of 0.4% as of June 30, 2021 and December 31, 2020)	$	1,500	$	1,814
Senior notes, maturing through 2050, interest rates ranging from 0.75% to 7.75% (weighted average interest rate of 3.1% as of June 30, 2021 and 3.3% as of December 31, 2020)		8,126		8,465
Canadian senior notes, C$500 million maturing September 2026, interest rate of 2.6%		403		393
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 0.05% to 4.3% (weighted average interest rate of 1.6% as of June 30, 2021 and 1.7% as of December 31, 2020)		2,672		2,571
Financing leases and other, maturing through 2085, weighted average interest rate of 4.7% as of June 30, 2021 and 4.6% as of December 31, 2020 (a)		625		652
Debt issuance costs, discounts and other		(82)		(85)
		13,244		13,810
Current portion of long-term debt		361		551
	$	12,883	$	13,259

(a)	Excluding our landfill financing leases, the maturities of our financing leases and other debt obligations extend through 2059.

Debt Classification

As of ~~September~~June 30, ~~2020,~~2021 we had ~~$2.2~~$2.9 billion of debt maturing within the next 12 months, including (i) ~~$600 million~~$1.5 billion of short-term borrowings under our commercial paper ~~program;~~program (net of related discount on issuance); (ii) ~~$400 million of 4.60% senior notes that mature in March 2021; (iii) $952 million~~$1.2 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities and ~~(iv) $167~~(iii) $212 million of other debt with scheduled maturities within the next 12 months, including ~~$63~~$103 million of tax-exempt bonds. As of ~~September~~June 30, ~~2020,~~2021, we have classified ~~$2.0~~$2.6 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S. and Canadian revolving credit facility (“$3.5 billion revolving credit facility”), as discussed below. The remaining ~~$167~~$361 million of debt maturing in the next 12 months is classified as current obligations.

As of ~~September~~June 30, ~~2020,~~2021, we also had $54 million of variable-rate tax-exempt bonds with long-term scheduled maturities supported by letters of credit under our $3.5 billion revolving credit facility. The interest rates on our variable-rate tax-exempt bonds are generally reset on either a daily or weekly basis through a remarketing process. All recent tax-exempt bond remarketings have successfully placed Company bonds with investors at market-driven rates and we currently expect future remarketings to be successful. However, if the remarketing agent is unable to remarket our bonds, the remarketing agent can put the bonds to us. In the event of a failed remarketing, we have the availability under our $3.5 billion revolving credit facility to fund these bonds until they are remarketed successfully. Accordingly, we have

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

classified the $54 million of variable-rate tax-exempt bonds with maturities of more than one year as long-term in our Condensed Consolidated Balance Sheet as of ~~September~~June 30, ~~2020.~~2021.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Access to and Utilization of Credit Facilities and Commercial Paper Program

~~$3.0 Billion Revolving Credit Facility —~~ On July 28, 2020, we entered into a supplemental $3.0 billion, 364-day, U.S. revolving credit facility (“$3.0 billion revolving credit facility”) maturing July 27, 2021, to be used for general corporate purposes, including funding a portion of the Advanced Disposal acquisition as discussed further in Note 14, and refinancing of indebtedness. The facility provides the Company the option to convert outstanding balances into a term loan maturing no later than the first anniversary of the maturity date, subject to the payment of a fee and notifying the administrative agent at least 15 days prior to the original maturity date. The rates we pay for outstanding loans are generally based on LIBOR, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR ranges from 1.0% to 1.3%. Based on our current ratings, the rate which we expect to pay will be LIBOR plus 1.225%. As of September 30, 2020, we had 0 outstanding borrowings under this facility. WM Holdings, a wholly-owned subsidiary of WM, guarantees all the obligations under the $3.0 billion revolving credit facility.

$3.5 Billion Revolving Credit Facility — Our $3.5 billion revolving credit facility, maturing November 2024, provides us with credit capacity to be used for cash borrowings, to support letters of credit and to support our commercial paper program. The rates we pay for outstanding U.S. or Canadian loans are generally based on LIBOR or CDOR, respectively, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. As of ~~September~~June 30, ~~2020,~~2021, we had 0 outstanding borrowings under this facility. We had ~~$269~~$266 million of letters of credit issued and ~~$600 million~~$1.5 billion of outstanding borrowings (net of related discount on issuance) under our commercial paper program, both supported by ~~this~~the facility, leaving unused and available credit capacity of ~~$2.6~~$1.7 billion as of ~~September~~June 30, ~~2020.~~2021. WM Holdings, a wholly-owned subsidiary of WM, guarantees all of the obligations under the $3.5 billion revolving credit facility.

Commercial Paper Program — We have a commercial paper program that enables us to borrow funds for up to 397 days at competitive interest rates. The rates we pay for outstanding borrowings are based on the term of the notes. The commercial paper program is fully supported by our $3.5 billion revolving credit facility. As of ~~September~~June 30, ~~2020,~~2021, we had ~~$600 million~~$1.5 billion of outstanding borrowings (net of related discount on issuance) under our commercial paper program.

Other Letter of Credit ~~Facilities~~Lines — As of ~~September~~June 30, ~~2020,~~2021, we had utilized ~~$528~~$615 million of other uncommitted letter of credit ~~facilities, which are both committed and uncommitted,~~lines with terms maturing through ~~September 2021.~~June 2022.

Debt Borrowings and Repayments

Commercial Paper Program — During the ~~three~~six months ended ~~September~~June 30, ~~2020,~~2021, we ~~had net~~made cash ~~borrowings~~repayments of ~~$597~~$954 million, which were partially offset by $640 million of cash borrowings (net of related discount on issuance), the proceeds of which were primarily used for the redemption of senior notes discussed further below. We did not have any borrowing or repayment activity under our commercial paper program during the first six months of 2020..

Senior Notes — In ~~June 2020, we repaid $600~~May 2021, WM issued $950 million of ~~4.75%~~ senior notes consisting of $475 million of 2.00% senior notes due June 1, 2029 and $475 million of 2.95% senior notes due June 1, 2041. The net proceeds from these debt issuances were $942 million, all of which were used, along with available cash ~~at their scheduled maturity.~~

~~In May 2019, we issued $4.0~~on hand, to retire $1.3 billion of certain high-coupon senior ~~notes, $3.0 billion of which were due 2024, 2026, 2029 and 2039 and~~notes. The cash paid included ~~a special mandatory redemption feature (the “SMR Notes”). The SMR Notes were issued with~~ the ~~intention of paying a portion~~principal amount of the ~~consideration~~debt retired, $211 million of related ~~to our acquisition~~premiums and other third-party costs, and $15 million of Advanced Disposal, which is discussed further in Notes 8 and 14. Pursuant to the terms of the SMR Notes, we were required to redeem all of such outstanding notes paying debt holders 101% of the aggregate principal amounts of such notes, plus accrued ~~but unpaid interest, as a result of the acquisition not being completed by July 14, 2020. Accordingly, the redemption was completed on July 20, 2020 using~~interest.

1211

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

available cash on hand and, to a lesser extent, commercial paper borrowings. The cash paid included the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest. We recognized a ~~$52~~$220 million loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations related to the ~~redemption during the three months ended September 30, 2020,~~tender offer, including ~~$30~~$211 million of premiums ~~paid~~ and ~~$22~~other third-party costs and $9 million ofprimarily related to unamortized discounts and debt issuance costs. We also recognized $6 million of charges to interest expense for the write-off of cash flow hedges associated with the tendered notes, which was previously being amortized to interest expense through the notes’ stated maturities. The following table summarizes the principal amount of senior notes redeemed within each series in order of acceptance priority level (in millions):


	Principal
	Outstanding		Notes Tendered
Description	Prior to Tender		and Redeemed
6.125% WM senior notes due 2039	$	252	$	6
7.75% WM senior notes due 2032		153		9
7.375% WM senior notes due 2029		81		—
4.15% WM senior notes due 2049		1,000		316
4.10% WM senior notes due 2045		750		334
3.90% WM senior notes due 2035		450		153
7.00% WM senior notes due 2028		330		73
7.10% WM Holdings senior notes due 2026		249		26
3.50% WM senior notes due 2024		350		194
3.125% WM senior notes due 2025		600		178
3.15% WM senior notes due 2027		750		—
2.90% WM senior notes due 2022		500		—
2.40% WM senior notes due 2023		500		—
Total	$	5,965	$	1,289

In conjunction with the tender offer, we entered into a reverse Treasury rate lock with a total notional value of $450 million to hedge our interest rate exposure. We did not designate the reverse Treasury rate lock as a cash flow hedge. Upon completion of the tender offer, we terminated the reverse Treasury rate lock and paid $8 million in cash. The related loss is included in other, net in the Condensed Consolidated Statement of Operations.

Tax-Exempt Bonds — We issued ~~$51~~$125 million of new tax-exempt bonds in ~~2020.~~2021. The proceeds from the issuance of these bonds were deposited directly into a restricted trust fund and may only be used for the specific purpose for which the money was raised, which is generally to finance expenditures for landfill and solid waste disposal facility construction and development. ~~In the third quarter of 2020, we elected to refund and reissue $130 million of tax-exempt bonds.~~ Additionally, during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we repaid ~~$82~~$24 million of our tax-exempt bonds with available cash at their scheduled maturities.

Financing Leases and Other — The decrease during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 is due to ~~$80~~$59 million of cash repayments ~~primarily related to our federal low-income housing investments, financing leases and other obligations,~~of debt at maturity, partially offset by an increase of ~~$21~~$32 million primarily associated with ~~financing leases and, to a lesser extent,~~ non-cash financing ~~arrangements.~~

~~Interest Rate Derivatives~~

~~Active Hedges~~ — During the third quarter of 2020, we entered into treasury rate locks with a notional value of $500 million to secure an underlying interest rate of a debt issuance which is currently being evaluated for the fourth quarter of 2020, subject to market conditions and other considerations. We designated our treasury locks as cash flow hedges. As of September 30, 2020, the fair value of these active interest rate derivatives was an asset of $4 million, classified as current assets.

~~Terminated Hedges~~ — During the first half of 2020, we entered into treasury rate locks with a total notional value of $400 million to secure an underlying interest rate in anticipation of a debt issuance previously anticipated in the second quarter of 2020. We designated our treasury locks as cash flow hedges. In June 2020, we terminated these treasury rate locks and upon termination received $1 million in cash. As noted above, we are evaluating a debt issuance in the fourth quarter of 2020, subject to market conditions and other considerations, which we believe is still probable to occur. As such, the gain associated with these treasury rate locks has been deferred as a component of “Accumulated other comprehensive income” and will be amortized to interest expense over the debt term once the issuance occurs.

All financial statement impacts associated with these financial hedges were immaterial as of and for the three and nine months ended September 30, 2020. There was no significant ineffectiveness associated with our cash flow hedges during the three or nine months ended September 30, 2020. Refer to Note 10 for information regarding the impacts of our cash flow derivatives on our comprehensive income and results of operations.

leases.

4. Income Taxes

Our effective income tax rate was ~~24.5%~~22.9% and ~~21.4%~~22.8% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared with ~~19.4%~~22.2% and ~~22.2%~~19.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

The increase in our effective income tax rate when comparing the three months ended ~~September~~June 30, ~~2020~~2021 with the prior year period was due to (i) a decrease in the benefits realized on tax audit settlements and ~~2019~~(ii) lower federal tax credits. The increase in our effective income tax rate for the six-month period ended June 30, 2021 as compared with the prior year period was ~~primarily driven~~also impacted by (i) a decrease in excess tax benefits associated with equity-based compensation and (ii) favorable adjustments to accruals and related deferred taxes recorded in 2019 due to the filing of our 2018 income tax returns and changes in state and foreign laws; (ii) lower federal tax credits in 2020 and (iii) the detrimental impact of non-deductible transaction costs related to closing the acquisition of Advanced Disposal. The decrease in our effective income tax rate when comparing the nine months ended September 30, 2020 and 2019 was primarily driven by (i) a decrease in pre-tax income in 2020, which increased the effective tax rate impact of federal tax2020.

1312

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~credits and (ii) a $52 million non-cash impairment charge recognized in 2019 that was not deductible for tax purposes.~~ These items are discussed further below. We evaluate our effective income tax rate at each interim period and adjust it as facts and circumstances warrant.

Equity-Based Compensation — During the three and six months ended June 30, 2021, we recognized a reduction in income tax expense of $2 million and $11 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards compared with $2 million and $23 million, respectively, for the comparable prior year periods.

Investments Qualifying for Federal Tax Credits — We have significant financial interests in entities established to invest in and manage low-income housing properties. We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments qualify for federal tax credits that we expect to realize through 2030 under Section 42 or Section 45D of the Internal Revenue Code. We also held a residual financial interest in an entity that ~~owns~~owned a refined coal facility that qualified for federal tax credits under Section 45 of the Internal Revenue Code through 2019. The entity sold the majority of its assets in the first quarter of 2020, which resulted in a $7 million non-cash impairment of our investment at that time. We account for our investments in these entities using the equity method of accounting, recognizing our share of each entity’s results of operations and other reductions in the value of our investments in equity in net losses of unconsolidated entities, within our Condensed Consolidated Statements of Operations.

During the three and ~~nine~~six months ended ~~September~~June 30, 2021, we recognized $12 million and $21 million, respectively, of net losses for these investments. We also recognized a reduction in our income tax expense for the three and six months ended June 30, 2021 of $16 million and $32 million, respectively, due to federal tax credits realized from these investments as well as the tax benefits from the pre-tax losses realized. In addition, during the three and six months ended June 30, 2021, we recognized interest expense of $3 million and $5 million, respectively, associated with our investments in low-income housing properties.

During the three and six months ended June 30, 2020, we recognized ~~$16~~$17 million and ~~$59~~$43 million, respectively, (including the $7 million impairment of the refined coal facility noted above for the ~~nine month~~six-month period) of net losses ~~and~~for these investments. We also recognized a reduction in our income tax expense for the three and six months ended June 30, 2020 of ~~$24~~$17 million and ~~$65~~$41 million, respectively, ~~primarily~~ due to federal tax credits realized from these ~~investments.~~investments as well as the tax benefits from the pre-tax losses realized. In addition, during the three and ~~nine~~six months ended ~~September~~June 30, 2020, we recognized interest expense of $3 ~~million and $9 million, respectively, associated with our investments in low-income housing properties.~~

During the three and nine months ended September 30, 2019, we recognized $11 million and $32 million of net losses and a reduction in our income tax expense of $36 million and $69 million, respectively, primarily due to tax credits realized from these investments. In addition, during the three and nine months ended September 30, 2019, we recognized interest expense of $2 million and $6 million, respectively, associated with our investments in low-income housing properties.

See Note 13 for additional information related to these unconsolidated variable interest entities.

Tax Audit Settlements — During the three months ended June 30, 2021 and 2020, we settled various tax audits, which resulted in a reduction in our income tax expense of $1 million and $5 million, respectively.

Adjustments to Accruals and Related Deferred Taxes — ~~For~~During the ~~three and nine months ended September 30,~~first quarter of 2020, we recognized a reduction in our income tax expense of $6 million for adjustments to accruals and related deferred taxes impacted our income tax expense with a nominal increase and a $6 million decrease, respectively. During the third quarter of 2019, adjustments to accruals and related deferred taxes decreased our income tax expense by $13 million for both the three and nine months ended September 30, 2019. These adjustments were the result of filing our income tax returns and changes in state and foreign laws.

~~Non-Deductible Transaction Costs~~ — During the three months ended September 30, 2020, we recognized the detrimental tax impact of $19 million of non-deductible transaction costs related to closing the acquisition of Advanced Disposal. The tax rules require the capitalization of certain facilitative costs on the acquisition of stock of a company resulting in the applicable costs not being deductible for tax purposes.

~~Tax Implications of Impairments~~ — We recognized a $52 million non-cash impairment charge in the first quarter of 2019 which was not deductible for tax purposes. The non-cash impairment charges recognized during the three and nine months ended September 30, 2020 are deductible for tax purposes. See Note 9 for additional information related to the impairments.

~~Equity-Based Compensation~~ — During the three and nine months ended September 30, 2020, we recognized a reduction in income tax expense of $2 million and $25 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards compared with $5 million and $22 million, respectively, for the comparable prior year periods.taxes.

1413

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~Recent Legislation~~ — On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, none of which directly affected our income tax expense for the three and nine months ended September 30, 2020 or are expected to have a material impact on our income tax expense in future reporting periods. The Company is evaluating the impact of the CARES Act and expects to benefit from the deferral of certain payroll taxes through the end of calendar year 2020.

5. Earnings Per Share

Basic and diluted earnings per share were computed using the following common share data (shares in millions):


	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2020	2019	2020	2019	2021	2020	2021	2020
Number of common shares outstanding at end of period	422.6	424.2	422.6	424.2	420.8	422.2	420.8	422.2
Effect of using weighted average common shares outstanding	0.1	0.3	0.5	0.4	0.8	0.1	1.5	1.0
Weighted average basic common shares outstanding	422.7	424.5	423.1	424.6	421.6	422.3	422.3	423.2
Dilutive effect of equity-based compensation awards and other contingently issuable shares	1.9	2.9	1.9	2.8	2.0	1.6	1.7	1.9
Weighted average diluted common shares outstanding	424.6	427.4	425.0	427.4	423.6	423.9	424.0	425.1
Potentially issuable shares	6.3	6.8	6.3	6.8	6.1	6.5	6.1	6.5
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding	1.3	0.7	1.7	0.7	0.6	2.1	1.0	2.1

6. Commitments and Contingencies

Financial Instruments — We have obtained letters of credit, surety bonds and insurance policies and have established trust funds and issued financial guarantees to support tax-exempt bonds, contracts, performance of landfill final capping, closure and post-closure requirements, environmental remediation and other obligations. Letters of credit generally are supported by our $3.5 billion revolving credit facility and other credit ~~facilities~~lines established for that purpose. These facilities are discussed further in Note 3. Surety bonds and insurance policies are supported by (i) a diverse group of third-party surety and insurance companies; (ii) an entity in which we have a noncontrolling financial interest or (iii) a wholly-owned insurance captive, the sole business of which is to issue surety bonds and/or insurance policies on our behalf.

Management does not expect that any claims against or draws on these instruments would have a material adverse effect on our financial condition, results of operations or cash flows. We have not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for our current ~~operations as a result of COVID-19 or other economic factors.~~operations. In an ongoing effort to mitigate risks of future cost increases and reductions in available capacity, we continue to evaluate various options to access cost-effective sources of financial assurance.

Insurance — We carry insurance coverage for protection of our assets and operations from certain risks including general liability, automobile liability, workers’ compensation, real and personal property, directors’ and officers’ liability, pollution legal liability, cyber incident liability and other coverages we believe are customary to the industry. Our exposure to loss for insurance claims is generally limited to the per incident deductible under the related insurance policy. Our exposure could increase if our insurers are unable to meet their commitments on a timely basis.

We have retained a significant portion of the risks related to our health and welfare, general liability, automobile liability and workers’ compensation claims programs. “General liability” refers to the self-insured portion of specific third-party claims made against us that may be covered under our commercial General Liability Insurance Policy. For our self-insured portions, the exposure for unpaid claims and associated expenses, including incurred but not reported losses, is

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

based on an actuarial valuation or internal estimates. The accruals for these liabilities could be revised if future occurrences or loss development significantly differ from such valuations and estimates. We use a wholly-owned insurance captive to insure the deductibles for our general liability, automobile liability and workers’ compensation claims programs.

We do not expect the impact of any known casualty, property, environmental or other contingency to have a material impact on our financial condition, results of operations or cash flows.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Guarantees — In the ordinary course of our business, WM and WM Holdings enter into guarantee agreements associated with their subsidiaries’ operations. Additionally, WM and WM Holdings have each guaranteed all of the senior debt of the other entity. No additional liabilities have been recorded for these intercompany guarantees because all of the underlying obligations are reflected in our Condensed Consolidated Balance Sheets.

As of ~~September~~June 30, ~~2020,~~2021 we have guaranteed the obligations and certain performance requirements of third parties in connection with both consolidated and unconsolidated entities, including guarantees to cover certain market value losses for certain properties adjacent to or near 18 of our landfills. We have also agreed to indemnify certain third-party purchasers against liabilities associated with divested operations prior to such sale. Additionally, under certain of our acquisition agreements, we have provided for additional consideration to be paid to the sellers if established financial targets or other market conditions are achieved post-closing, and we have recognized liabilities for these contingent obligations based on an estimate of the fair value of these contingencies at the time of acquisition. We do not believe that these contingent obligations will have a material adverse effect on the Company’s financial condition, results of operations or cash ~~flows, and we do not expect the financial impact of operational and financial performance guarantees to materially exceed the recorded fair value.~~flows.

Environmental Matters — A significant portion of our operating costs and capital expenditures could be characterized as costs of environmental protection. The nature of our operations, particularly with respect to the construction, operation and maintenance of our landfills, subjects us to an array of laws and regulations relating to the protection of the environment. Under current laws and regulations, we may have liabilities for environmental damage caused by our operations, or for damage caused by conditions that existed before we acquired a site. In addition to remediation activity required by state or local authorities, such liabilities include potentially responsible party (“PRP”) investigations. The costs associated with these liabilities can include settlements, certain legal and consultant fees, as well as incremental internal and external costs directly associated with site investigation and clean-up.

Estimating our degree of responsibility for remediation is inherently difficult. We recognize and accrue for an estimated remediation liability when we determine that such liability is both probable and reasonably estimable. Determining the method and ultimate cost of remediation requires that a number of assumptions be made. There can sometimes be a range of reasonable estimates of the costs associated with the likely site remediation alternatives identified in the environmental impact investigation. In these cases, we use the amount within the range that is our best estimate. If no amount within a range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of such ranges, our aggregate potential liability would be approximately ~~$145~~$135 million higher than the ~~$238~~$220 million recorded in the Condensed Consolidated Balance Sheet as of ~~September~~June 30, ~~2020.~~2021. Our ultimate responsibility may differ materially from current estimates. It is possible that technological, regulatory or enforcement developments, the results of environmental studies, the inability to identify other PRPs, the inability of other PRPs to contribute to the settlements of such liabilities, or other factors could require us to record additional liabilities. Our ongoing review of our remediation liabilities, in light of relevant internal and external facts and circumstances, could result in revisions to our accruals that could cause upward or downward adjustments to our balance sheet and income from operations. These adjustments could be material in any given period.

As of ~~September~~June 30, ~~2020,~~2021, we have been notified by the government that we are a PRP in connection with 7573 locations listed on the Environmental Protection Agency’s (“EPA’s”) Superfund National Priorities List (“NPL”). Of the 7573 sites at which claims have been made against us, 1514 are sites we own. Each of the NPL sites we own was initially developed by

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

others as a landfill disposal facility. At each of these facilities, we are working in conjunction with the government to evaluate or remediate identified site problems, and we have either agreed with other legally liable parties on an arrangement for sharing the costs of remediation or are working toward a cost-sharing agreement. We generally expect to receive any amounts due from other participating parties at or near the time that we make the remedial expenditures. The other 6059 NPL sites, which we do not own, are at various procedural stages under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, known as CERCLA or Superfund.

The majority of proceedings involving NPL sites that we do not own are based on allegations that certain of our subsidiaries (or their predecessors) transported hazardous substances to the sites, often prior to our acquisition of these subsidiaries. CERCLA generally provides for liability for those parties owning, operating, transporting to or disposing at the sites. Proceedings arising under Superfund typically involve numerous waste generators and other waste transportation and disposal companies and seek to allocate or recover costs associated with site investigation and remediation, which

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

costs could be substantial and could have a material adverse effect on our consolidated financial statements. At some of the sites at which we have been identified as a PRP, our liability is well defined as a consequence of a governmental decision and an agreement among liable parties as to the share each will pay for implementing that remedy. At other sites, where no remedy has been selected or the liable parties have been unable to agree on an appropriate allocation, our future costs are uncertain.

On October 11, 2017, the EPA issued its Record of Decision (“ROD”) with respect to the previously proposed remediation plan for the San Jacinto waste pits in Harris County, Texas. McGinnes Industrial Maintenance Corporation (“MIMC”), an indirect wholly-owned subsidiary of WM, operated some of the waste pits from 1965 to 1966 and has been named as a site PRP. In 1998, WM acquired the stock of the parent entity of MIMC. MIMC has been working with the EPA and other named PRPs as the process of addressing the site proceeds. On April 9, 2018, MIMC and International Paper Company entered into an Administrative Order on Consent agreement with the EPA to develop a remedial design for the EPA’s proposed remedy for the site. Allocation of responsibility among the PRPs for the proposed remedy has not been established. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the recorded liability for MIMC’s estimated potential share of the EPA’s proposed remedy and related costs was ~~$55~~$53 million and ~~$56~~$55 million, respectively. MIMC’s ultimate liability could be materially different from current estimates.

Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings, or such proceedings are known to be contemplated, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, ~~of less than $100,000. The following matter is disclosed in~~below a stated threshold. In accordance with ~~that requirement:~~

~~On July 10, 2013,~~this SEC regulation, the ~~EPA issued~~Company uses a ~~Notice~~threshold of ~~Violation ("NOV") to Waste Management~~$1 million for purposes of ~~Wisconsin, Inc., an indirect wholly-owned subsidiary~~determining whether disclosure of ~~WM, alleging violations~~any such environmental proceedings is required. As of the ~~Resource Conservation and Recovery Act concerning acceptance~~date of ~~certain waste~~this filing, we are not aware of any matters that ~~was not permitted~~are required to be ~~disposed of at the Metro Recycling & Disposal Facility in Franklin, Wisconsin. The parties have agreed~~disclosed pursuant to ~~resolve~~ this matter through payment of a penalty, implementation of additional monitoring activities and revisions to waste acceptance protocols at the facility. The related Consent Decree became final in September 2020, and the outcome of this matter is not material to the Company’s business, financial condition, results of operations or cash flows.standard.

From time to time, we are also named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of having owned, operated or transported waste to a disposal facility that is alleged to have contaminated the environment or, in certain cases, on the basis of having conducted environmental remediation activities at sites. Some of the lawsuits may seek to have us pay the costs of monitoring of allegedly affected sites and health care examinations of allegedly affected persons for a substantial period of time even where no actual damage is proven. While we believe we have meritorious defenses to these lawsuits, the ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

individual plaintiffs’ circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other factors. Additionally, we often enter into agreements with landowners imposing obligations on us to meet certain regulatory or contractual conditions upon site closure or upon termination of the agreements. Compliance with these agreements inherently involves subjective determinations and may result in disputes, including litigation.

Litigation — As a large company with operations across the U.S. and Canada, we are subject to various proceedings, lawsuits, disputes and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions that have been filed against us, and that may be filed against us in the future, include personal injury, property damage, commercial, customer, and employment-related claims, including purported state and national class action lawsuits related to: alleged environmental contamination, including releases of hazardous material and odors; sales and marketing practices, customer service agreements and prices and fees; and federal and state wage and hour and other laws. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. These actions are in various procedural stages, and some are covered, in part, by insurance. We currently do not believe that the eventual outcome of any such actions will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

WM’s charter and bylaws provide that WM shall indemnify against all liabilities and expenses, and upon request shall advance expenses to any person, who is subject to a pending or threatened proceeding because such person is or was a

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

director or officer of the Company. Such indemnification is required to the maximum extent permitted under Delaware law. Accordingly, the director or officer must execute an undertaking to reimburse the Company for any fees advanced if it is later determined that the director or officer was not permitted to have such fees advanced under Delaware law. Additionally, the Company has direct contractual obligations to provide indemnification to each of the members of WM’s Board of Directors and each of WM’s executive officers. The Company may incur substantial expenses in connection with the fulfillment of its advancement of costs and indemnification obligations in connection with actions or proceedings that may be brought against its former or current officers, directors and employees.

Multiemployer Defined Benefit Pension Plans — About 20% of our workforce is covered by collective bargaining agreements with various local unions across the U.S. and Canada. As a result of some of these agreements, certain of our subsidiaries are participating employers in a number of trustee-managed multiemployer defined benefit pension plans (“Multiemployer Pension Plans”) for the covered employees. In connection with our ongoing renegotiation of various collective bargaining agreements, we may discuss and negotiate for the complete or partial withdrawal from one or more of these Multiemployer Pension Plans. A complete or partial withdrawal from a Multiemployer Pension Plan may also occur if employees covered by a collective bargaining agreement vote to decertify a union from continuing to represent them. Any other circumstance resulting in a decline in Company contributions to a Multiemployer Pension Plan through a reduction in the labor force, whether through attrition over time or through a business event (such as the discontinuation or nonrenewal of a customer contract, the decertification of a union, or relocation, reduction or discontinuance of certain operations) may also trigger a complete or partial withdrawal from one or more of these pension plans. During the first quarter of 2020, we recognized a $3 million charge to operating expenses for the withdrawal from an underfunded Multiemployer Pension Plan.

We do not believe that any future liability relating to our past or current participation in, or withdrawals from, the Multiemployer Pension Plans to which we contribute will have a material adverse effect on our business, financial condition or liquidity. However, liability for future withdrawals could have a material adverse effect on our results of operations or cash flows for a particular reporting period, depending on the number of employees withdrawn and the financial condition of the Multiemployer Pension Plan(s) at the time of such withdrawal(s).

Tax Matters — We participate in the IRS’s Compliance Assurance Process, which means we work with the IRS throughout the year towards resolving any material issues prior to the filing of our annual tax return. Any unresolved issues as of the tax return filing date are subject to routine examination procedures. We are currently in the examination phase of IRS audits for the 2017 through ~~2020~~2021 tax years and expect these audits to be completed within the next 1821 months. We are

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

also currently undergoing audits by various state and local jurisdictions for tax years that date back to 2014. We maintain a liability for uncertain tax positions, the balance of which management believes is adequate. Results of audit assessments by taxing authorities are not currently expected to have a material adverse effect on our financial condition, results of operations or cash flows.

7. Segment and Related Information

We evaluate, oversee and manage the financial performance of our Solid Waste business subsidiaries through our Areas. In the second quarter of 2021, we combined our Eastern and Western Canada Areas reducing the number of Areas we manage from 17 ~~Areas.~~to 16. The 1716 Areas constitute operating segments and we have evaluated the aggregation criteria and concluded that, based on the similarities between our Areas, including the fact that our Solid Waste business is homogenous across geographies with the same services offered across the Areas, aggregation of our Areas is appropriate for purposes of presenting our reportable segments. Accordingly, we have aggregated our 1716 Areas into 3 tiers that we believe have similar economic characteristics and future prospects based in large part on a review of the Areas’ income from operations margins. The economic variations experienced by our Areas are attributable to a variety of factors, including regulatory environment of the Area; economic environment of the Area, including level of commercial and industrial activity; population density; service offering mix and disposal logistics, with no one factor being singularly determinative of an Area’s current or future economic performance.

In the fourth quarter of 2019, as part of our annual review process, we analyzed the Areas’ income from operations margins for purposes of segment reporting and realigned our Solid Waste tiers to reflect recent changes in their relative economic characteristics and prospects. These changes are the results of various factors including acquisitions, divestitures, business mix and the economic climate of various geographies. As a result, we reclassified the Western Canada Area from Tier 1 to Tier 2 and the Northern California Area from Tier 3 to Tier 2. Reclassifications have been made to our prior period condensed consolidated financial information to conform to the current year presentation.

Tier 1 is comprised of our operations across the Southern U.S., with the exception of the Southern California Area and the Florida Area, and also includes the New England Area and the tri-state Area of Michigan, Indiana and Ohio. Tier 2 includes California, Canada, and the Wisconsin and Minnesota Area. Tier 3 encompasses all the remaining operations including the Pacific Northwest, the Mid-Atlantic region of the U.S., the Florida Area, and the Illinois and Missouri Valley Area.

The operating segments not evaluated and overseen through the 17 Areas are presented herein as “Other” as these operating segments do not meet the criteria to be aggregated with other operating segments and do not meet the quantitative criteria to be separately reported.

1917

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As a result of the combination of our Eastern and Western Canada Areas, we analyzed all 16 Areas’ income from operations margins for purposes of segment reporting and realigned our Solid Waste tiers to reflect changes in their relative economic characteristics and prospects. Reclassifications have been made to our prior period condensed consolidated financial information to conform to the current year presentation.

The operating segments not evaluated and overseen through the 16 Areas are presented herein as “Other” as these operating segments do not meet the criteria to be aggregated with other operating segments and do not meet the quantitative criteria to be separately reported.

Summarized financial information concerning our reportable segments is shown in the following table (in millions):

Gross

Intercompany

Net

Income

Operating

Operating

Operating

from


Revenues

Revenues(c)

Revenues

Operations(d)
Three Months Ended September 30:








2020








Solid Waste:








Tier 1

$
1,521

$
(295)

$
1,226

$
430
Tier 2

984

(209)

775

226
Tier 3

1,572

(304)

1,268

290
Solid Waste

4,077

(808)

3,269

946
Other (a)

615

(23)

592

(7)

4,692

(831)

3,861

939
Corporate and Other (b)

—

—

—

(259)
Total

$
4,692

$
(831)

$
3,861

$
680

2019








Solid Waste:








Tier 1

$
1,576

$
(295)

$
1,281

$
436
Tier 2

998

(199)

799

226
Tier 3

1,641

(310)

1,331

298
Solid Waste

4,215

(804)

3,411

960
Other (a)

589

(33)

556

(25)

4,804

(837)

3,967

935
Corporate and Other (b)

—

—

—

(201)
Total

$
4,804

$
(837)

$
3,967

$
734


	Gross		Intercompany		Net		Income
	Operating		Operating		Operating		from
	Revenues		Revenues(d)		Revenues		Operations
Three Months Ended June 30:
2021
Solid Waste:
Tier 1	$	1,214	$	(228)	$	986	$	350
Tier 2		1,495		(323)		1,172		331
Tier 3		1,997		(376)		1,621		375
Solid Waste (a)		4,706		(927)		3,779		1,056
Other (b)		729		(32)		697		4
		5,435		(959)		4,476		1,060
Corporate and Other (c)		—		—		—		(269)
Total	$	5,435	$	(959)	$	4,476	$	791

2020
Solid Waste:
Tier 1	$	975	$	(178)	$	797	$	270
Tier 2		1,194		(252)		942		208
Tier 3		1,599		(306)		1,293		244
Solid Waste (a)		3,768		(736)		3,032		722
Other (b)		554		(25)		529		(10)
		4,322		(761)		3,561		712
Corporate and Other (c)		—		—		—		(185)
Total	$	4,322	$	(761)	$	3,561	$	527

2018

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Gross		Intercompany		Net		Income		Gross		Intercompany		Net		Income
	Operating		Operating		Operating		from		Operating		Operating		Operating		from
	Revenues		Revenues(c)		Revenues		Operations(d)		Revenues		Revenues(d)		Revenues		Operations
Nine Months Ended September 30:
Six Months Ended June 30:
2021
Solid Waste:
Tier 1									$	2,302	$	(429)	$	1,873	$	657
Tier 2										2,890		(625)		2,265		622
Tier 3										3,820		(709)		3,111		695
Solid Waste(a)										9,012		(1,763)		7,249		1,974
Other ~~(a)~~(b)										1,394		(55)		1,339		22
										10,406		(1,818)		8,588		1,996
Corporate and Other ~~(b)~~(c)										—		—		—		(555)
Total									$	10,406	$	(1,818)	$	8,588	$	1,441

2020
Solid Waste:
Tier 1	$	4,442	$	(846)	$	3,596	$	1,139	$	1,999	$	(360)	$	1,639	$	558
Tier 2		2,813		(597)		2,216		596		2,450		(517)		1,933		477
Tier 3		4,566		(873)		3,693		776		3,295		(631)		2,664		532
Solid Waste(a)		11,821		(2,316)		9,505		2,511		7,744		(1,508)		6,236		1,567
Other ~~(a)~~(b)		1,723		(77)		1,646		(42)		1,108		(54)		1,054		(35)
		13,544		(2,393)		11,151		2,469		8,852		(1,562)		7,290		1,532
Corporate and Other ~~(b)~~(c)		—		—		—		(689)		—		—		—		(432)
Total	$	13,544	$	(2,393)	$	11,151	$	1,780	$	8,852	$	(1,562)	$	7,290	$	1,100

2019
Solid Waste:
Tier 1	$	4,602	$	(853)	$	3,749	$	1,268
Tier 2		2,897		(580)		2,317		656
Tier 3		4,780		(900)		3,880		850
Solid Waste(a)		12,279		(2,333)		9,946		2,774
Other ~~(a)~~(b)		1,757		(94)		1,663		(92)
		14,036		(2,427)		11,609		2,682
Corporate and Other ~~(b)~~(c)		—		—		—		(631)
Total	$	14,036	$	(2,427)	$	11,609	$	2,051

(a)

“Other” includes (i) our Strategic Business Solutions (“WMSBS”) business; (ii) those elements of our landfill gas-to-energy operations and third-party subcontract and administration revenues managed by our Energy and Environmental Services (“EES”) and WM Renewable Energy businesses that are not included in the operations of our reportable segments; (iii) our recycling brokerage services and (iv) certain other expanded service offerings and solutions. In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

Income from operations for the Other segment for the three and nine months ended September 30, 2020 was impacted primarily by an increase in revenue for our WMSBS and WM Renewable Energy businesses as a result of new contract activities in the current year periods and a new renewable energy facility coming online which drove an increase in commodity sales, respectively. Additionally, the nine month period is impacted by a $16 million non-cash charge to write off certain equipment costs recorded in the prior year period offset, in part, by (i) a decrease in revenue within our EES business and (ii) the non-cash impairment of certain assets within our WM Renewable Energy business in the current year period.

~~(b)~~

Corporate operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments. These support services include, among other things, treasury, legal, information technology, tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills. Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive program and any administrative expenses or revisions to our estimated obligations associated with divested operations.

~~(c)~~

Intercompany operating revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(d)~~

Income from operations provided by our Solid Waste business is generally indicative of the margins provided by our collection, landfill, transfer and recycling lines of business. From time to time, the operating results of our reportable segments are significantly affected by certain transactions or events that management believes are not indicative or representative of our results. In 2020, we revised allocations between our segments including (i) the discontinuation of certain allocations from Corporate and Other to Solid Waste and (ii) allocating certain insurance costs from Other to Solid Waste. Reclassifications have been made to our prior period information for comparability purposes.

InThe increase in income from operations across the Tiers was primarily due to (i) revenue growth in our collection and disposal businesses driven by both volume and yield; (ii) improved profitability in our recycling business from higher market prices for recycling commodities, volume recovery from facilities where we temporarily suspended operations during the pandemic and improved costs at facilities where we have made investments in enhanced technology and equipment; (iii) a decrease in the provision for bad debts and (iv) the continuation of our proactive cost management efforts as volumes increased. These increases were partially offset by (i) higher incentive compensation costs; (ii) inflationary cost pressures and (iii) increased overtime driven by increased volumes and driver shortages. Additionally, the prior year periods were impacted by non-cash impairment charges, as further discussed below. The positive earnings contributions of Advanced Disposal were offset by elevated depreciation and amortization of the related acquired assets.

During the second quarter of 2020, ~~we recognized~~income from operations was impacted by $61 million of non-cash ~~impairment charges, including~~impairments consisting of (i) $41 million ~~related to our energy services assets~~of non-cash asset impairment charges in our Tier ~~1 segment. Refer~~2 segment primarily related to ~~Note 9~~two landfills and an oil field waste injection facility and (ii) a $20 million non-cash impairment charge in our Tier 3 segment related to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace.

(b)

“Other” includes (i) our Strategic Business Solutions (“WMSBS”) business; (ii) elements of our landfill gas-to-energy operations managed by our WM Renewable Energy business and not included in the operations of our reportable segments; (iii) elements of our third-party subcontract and administration revenues managed by our Energy and Environmental Services (“EES”) business and not included in the operations of our reportable segments; (iv) our

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recycling brokerage services and (v) certain other expanded service offerings and solutions. In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

The increase in income from operations was primarily driven by (i) increased market values for ~~additional information. Our 2020 operating results were also negatively impacted~~renewable energy credits generated by ~~revenue declines,~~our WM Renewable Energy business; (ii) increased revenues for our WMSBS business as a result of new contracts, improved pricing and increased customer activity and (iii) higher market prices for commodities benefiting our recycling brokerage services. The increase in income from operations for the ~~COVID-19 pandemic,~~six months ended June 30, 2021, as compared with the prior year period, was also due to a gain from the divestiture of certain ancillary operations during the first quarter of 2021.

(c)

“Corporate and Other” operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments. These support services include, among other things, treasury, legal, digital, tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills. Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive program.

The increase in these costs was driven by (i) higher incentive compensation costs; (ii) strategic investments in our ~~landfill~~digital platform; (iii) increases in health and ~~industrial and commercial collection businesses beginning in March~~welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020 and ~~continuing through~~(iv) increased labor and support costs from our acquisition of Advanced Disposal. The six months ended June 30, 2021, as compared with the ~~third~~prior year period, was further impacted by a charge pertaining to reserves for certain loss contingencies recognized during the first quarter of 2021, as well as changes in the measurement of our environmental remediation obligations and recovery assets in both the first quarter of 2020 ~~although we began to experience notable recoveries in volumes during the third quarter of 2020.~~and 2021.

(d)	Intercompany operating revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service.

The mix of operating revenues from our major lines of business are as follows (in millions):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Commercial	$	1,025	$	1,069	$	3,016	$	3,147	$	1,178	$	928	$	2,309	$	1,991
Residential		662		661		1,969		1,956		794		657		1,576		1,307
Industrial		709		766		2,027		2,190		811		625		1,554		1,318
Other collection		120		130		347		361		135		115		251		227
Total collection		2,516		2,626		7,359		7,654		2,918		2,325		5,690		4,843
Landfill		946		993		2,707		2,880		1,075		874		1,990		1,761
Transfer		482		471		1,362		1,357		532		439		997		880
Recycling		290		245		819		800		397		275		739		529
Other (a)		458		469		1,297		1,345		513		409		990		839
Intercompany (b)		(831)		(837)		(2,393)		(2,427)		(959)		(761)		(1,818)		(1,562)
Total	$	3,861	$	3,967	$	11,151	$	11,609	$	4,476	$	3,561	$	8,588	$	7,290

(a)

The “Other” line of business includes (i) certain services provided by our WMSBS business; (ii) our landfill gas-to-energy operations; (iii) certain services within our EES business, including our construction and remediation services and our services associated with the disposal of fly ash and (iv) certain other expanded service offerings and solutions. In addition, our “Other” line of business reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity. ~~Activity related~~Revenue attributable to collection, landfill, transfer and recycling ~~within~~services provided by our “Other” businesses has been ~~reclassified to~~reflected as a component of the ~~appropriate~~relevant line of business for purposes of ~~the~~ presentation in this table.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(b)	Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included within this report.

Fluctuations in our operating results may be caused by many factors, including period-to-period changes in the relative contribution of revenue by each line of business, changes in commodity prices and general economic conditions. ~~Typically, our~~Our revenues and income from operations typically reflect seasonal patterns. Our operating revenues tend to be somewhat higher in summer months, primarily due to the higher construction and demolition waste volumes. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect these seasonal trends.

~~Our 2020~~Prior year period operating results were negatively impacted by COVID-19, as volumes declined beginning in March 2020 ~~and continued through the third quarter~~ in our landfill, ~~and~~ industrial and commercial collection businesses due to steps taken by national and local governments to slow the spread of the virus, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. ~~We began to experience notable recoveries in volumes during the third quarter of 2020 with many private and~~

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

government bodies taking steps to re-open. For customers negatively impacted by the COVID-19 pandemic, we proactively waived and suspended certain ancillary service charges, deferred certain annual price increases, extended payment terms and adjusted customer service levels during the first half of 2020. Additionally, for qualifying small and medium businesses, we have provided customers with one-month of free service upon re-opening. While these customer-centric steps also contributed to the revenue decline, these impacts were immaterial. During the third quarter, improved economic conditions positioned us to resume most business practices in accordance with our contractual terms.

Service disruptions caused by severe storms, extended periods of inclement weather or climate ~~extremes resulting from climate change~~events can significantly ~~affect~~impact the operating results of the Areas affected. On the other hand, certain destructive weather and climate conditions, such as wildfires in the Western U.S. and hurricanes that most often impact our operations in the Southern and Eastern U.S. during the second half of the year, can increase our revenues in the Areas affected as a result of the waste volumes generated by these events. While weather-related and other ~~event driven~~event-driven special projects can boost revenues through additional work for a limited time, as a result of significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.

8. ~~Acquisitions and Assets Held-for-Sale~~

~~2020~~ Acquisition ~~and Assets Held-for-Sale~~

~~On April 14, 2019, we entered into an Agreement and Plan of Merger to acquire all outstanding shares~~ of Advanced Disposal ~~for $33.15 per share in cash, representing a total enterprise value at the time of $4.9 billion when including approximately $1.9 billion of Advanced Disposal’s net debt.~~

On ~~June 24,~~October 30, 2020, we ~~entered into an amendment to~~completed the ~~Agreement and Plan~~acquisition of ~~Merger (as amended, the “Merger Agreement”), pursuant to which a subsidiary of WM would acquire~~ all outstanding shares of Advanced Disposal for $30.30 per share in cash, ~~representing a total~~pursuant to an Agreement and Plan of Merger dated April 14, 2019, as amended on June 24, 2020. Total enterprise value of the acquisition was $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt. This acquisition grows our footprint and allows us to provide differentiated, sustainable waste management and recycling services to approximately 3 million new commercial, industrial, and residential customers, primarily located in ~~16 states in~~ the Eastern half of the U.S. The ~~transaction closed on October 30, 2020~~acquisition was funded using a $3.0 billion, 364-day, U.S. revolving credit facility and ~~is discussed further in Note 14.~~

~~On June 24,~~our commercial paper program. In November 2020, we ~~also announced that we~~issued $2.5 billion of senior notes and used a portion of the proceeds to repay all outstanding borrowings under the $3.0 billion, 364-day, U.S. revolver and terminated the facility.

Our consolidated financial statements have not been retroactively restated to include Advanced ~~Disposal entered into an agreement that provided~~Disposal’s historical financial position or results of operations. The acquisition was accounted for ~~GFL Environmental Inc. to acquire~~as a ~~combination of assets from us and Advanced Disposal to address divestitures required by the U.S. Department of Justice in connection~~business combination. In accordance with the ~~Advanced Disposal acquisition (as subsequently amended,~~purchase method of accounting, the ~~“Divestiture Agreement”). Immediately following~~purchase price paid has been allocated to the Merger Agreement closing on October 30, 2020, the transactions contemplated by the Divestiture Agreement were consummated and the Company received cash proceeds from the sale of $856.4 million, subject to certain post-closing adjustments. These transactions are discussed further in Note 14.

~~As of September 30, 2020, the WM assets to be divested met the criteria to be classified as held-for-sale and have been classified as such within other current~~ assets and ~~accrued~~ liabilities acquired based upon their estimated fair values as ~~appropriate, in~~of the acquisition date, with the excess of the purchase price over the net assets acquired recorded as goodwill. We have substantially completed our ~~Condensed Consolidated Balance Sheet. The carrying amounts~~valuation processes of all of the assets and liabilities ~~which are primarily~~acquired in the acquisition, however, until we have completed our ~~Tier 2~~valuation process, there may be adjustments to our estimates of fair value and ~~Tier 3 segments,~~resulting preliminary purchase price allocation, specifically those that require significant accounting estimates and assumptions, such as our landfills and intangibles.

Goodwill of $2.5 billion was calculated as the excess of the consideration paid over the net assets recognized and represents the future economic benefits expected to arise from other assets acquired that could not be individually identified and separately recognized. Goodwill has been assigned to our Areas that have ~~been classified~~integrated these operations as ~~held-for-sale~~they are ~~$53 million~~benefiting from the synergies of ~~property and equipment and goodwill and $17 million of landfill liabilities.~~the combination. Goodwill related to this acquisition is not deductible for income tax purposes.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~2019 Acquisition~~The following table shows the preliminary purchase price allocation as of the date acquired, and adjustments to June 30, 2021 (in millions):


	October 30, 2020			Adjustments	June 30, 2021
Accounts and other receivables	$	159	$	—	$	159
Parts and supplies		8		(1)		7
Other current assets		17		(1)		16
Assets held for sale (a)		1,022		—		1,022
Property and equipment		1,278		7		1,285
Goodwill		2,470		5		2,475
Other intangible assets		604		(3)		601
Investments in unconsolidated entities		9		—		9
Other assets		27		(2)		25
Accounts payable		(107)		1		(106)
Accrued liabilities		(155)		(4)		(159)
Deferred revenues		(19)		—		(19)
Current portion of long-term debt		(12)		—		(12)
Liabilities held for sale (a)		(234)		—		(234)
Long-term debt, less current portion (b)		(441)		—		(441)
Landfill and environmental remediation liabilities		(242)		(1)		(243)
Deferred income taxes		(223)		1		(222)
Other liabilities		(79)		(2)		(81)
Total purchase price	$	4,082	$	—	$	4,082

(a)

In connection with our acquisition of Advanced Disposal, we were required by the U.S. Department of Justice to divest assets, including a portion of the assets acquired from Advanced Disposal. Upon acquisition these assets met the criteria for reporting discontinued operations and were classified as held for sale and included within the “Assets held for sale” and “Liabilities held for sale” line items in the above preliminary allocation of purchase price. Immediately following the closing of our acquisition of Advanced Disposal, the transactions contemplated by the U.S. Department of Justice were consummated and we sold the net assets to GFL Environmental for total consideration of $856 million.

(b)	At the time of acquisition, Advanced Disposal had outstanding $425 million of 5.625% senior notes due November 2024, the fair value of which was $438 million. In November 2020, we redeemed the notes pursuant to an optional redemption feature.

The preliminary allocation of $601 million as of June 30, 2021 for other intangibles includes $572 million for customer relationships with an amortization period of 15 years and $29 million of other intangibles with a weighted average amortization period of seven years.

~~Petro Waste Environmental LP (“Petro Waste”)~~ —~~On March 8, 2019, Waste Management Energy Services Holdings, LLC, an indirect wholly-owned subsidiary~~9. Divestitures, Asset Impairments and Unusual Items

(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net

During the six months ended June 30, 2021, we recognized net charges of ~~WM, acquired Petro Waste. The acquired business provides comprehensive oilfield environmental services and solid waste disposal facilities~~$17 million in the ~~Permian Basin and the Eagle Ford Shale. The acquisition has expanded our offerings and enhanced the quality~~first quarter of ~~solid waste disposal services~~2021 consisting of (i) a $19 million charge pertaining to reserves for ~~oil and gas exploration and production operations in Texas. Our purchase price was primarily allocated to 7 landfills, which are included~~loss contingencies in our ~~property~~Corporate and ~~equipment.~~Other segment and (ii) $6 million of asset impairment charges primarily related to our WM Renewable Energy business within our Other

2322

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The acquisition was funded using commercial paper borrowings and the acquisition accounting for this transaction was finalized in 2019. The operating results of the acquired business did not have a material impact to our consolidated financial statements for the periods presented herein. Given the significant change in energy market dynamicsSegment. These charges were partially offset by an $8 million gain from ~~the time of the acquisition, we have seen a decline in the fair value~~divestitures of certain ancillary operations in our Other segment.

During the six months ended June 30, 2020, we recognized non-cash impairment charges of ~~these assets from the time of acquisition. The impairment recognized during~~$61 million in the second quarter of 2020 ~~is discussed further in Note 9.~~

~~9. Asset Impairments and Unusual Items~~

~~(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net~~

~~During the nine months ended September 30, 2020, we recognized $68 million of non-cash impairment charges~~ primarily related to the following:

Energy Services Asset Impairments— During the second quarter of 2020, the Company tested the recoverability of certain energy services assets in our Tier 12 segment. Indicators of impairment included (i) the sharp downturn in oil demand that has led to a significant decline in oil prices and production activities, which we project will have long-term impacts on the utilization of our assets and (ii) significant shifts in our business, including increases in competition and customers choosing to bury waste on site versus in a landfill, reducing our revenue outlook. The Company determined that the carrying amount of the asset group was not fully recoverable. As a result, we recognized $41 million of non-cash impairment charges primarily related to two landfills and an oil field waste injection facility in our Tier 12 segment. We wrote down the net book value of these assets to their estimated fair value using an income approach based on estimated future cash flow projections (Level 3). The aggregate fair value of the impaired asset group was $8 million as of June 30, 2020. The Company tested the recoverability of an additional $239 million in energy services assets and determined that the carrying amount was recoverable as of June 30, 2020. No new indicators of impairment were identified during the three months ended September 30, 2020.

Other Impairments — In addition to the energy services impairments noted above, during the second quarter of 2020, we recognized a $20 million non-cash impairment charge in our Tier 3 segment due to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace, which was considered an impairment indicator. As the carrying value was not recoverable, we wrote off the entire net book value of the asset using an income approach based on estimated future cash flow projections (Level 3). The impairment charge was comprised of $12 million related to the carrying value of the asset and $8 million related to the acceleration of the expected timing of capping, closure and post-closure ~~activities, which is discussed further in Note 2.~~

Additionally, during the third quarter of 2020, we recognized $7 million of net charges primarily related to non-cash impairments of certain assets within our WM Renewable Energy business in our Other segment. As the carrying values of the assets were not recoverable, we wrote off their entire net carrying value using an income approach based on estimated future cash flow projections (Level 3).activities.

Equity in Net Losses of Unconsolidated Entities

During the first quarter of 2020, we recorded a non-cash impairment charge of $7 million related to our investment in a refined coal facility which is discussed further in ~~Notes 4 and 13.~~Note 4. The fair value of our investment was not readily determinable; thus, we determined the fair value using management assumptions pertaining to investment value (Level 3).

~~Other, Net~~

During the first quarter of 2019, we recognized a $52 million non-cash impairment charge related to our minority-owned investment in a waste conversion technology business. We wrote down our investment to its estimated fair value as the result of a third-party investor’s transactions in these securities. The fair value of our investment was not

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

readily determinable; thus, we determined the fair value utilizing a combination of quoted price inputs for the equity in our investment (Level 2) and certain management assumptions pertaining to investment value (Level 3).

10. Accumulated Other Comprehensive Income (Loss)

The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, which is included as a component of Waste Management, Inc. stockholders’ equity, are as follows (in millions, with amounts in parentheses representing decreases to accumulated other comprehensive income):

Foreign

Post-

Available-

Currency

Retirement

Derivative

for-Sale

Translation

Benefit


Instruments

Securities

Adjustments(a)

Obligations

Total
December 31, 2019

$
(24)

$
38

$
(21)

$
(1)

$
(8)
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $1, $3, $0 and $0, respectively

4

7

(23)

—

(12)
Amounts reclassified from accumulated other comprehensive (income) loss, net of tax (expense) benefit of $2, $0, $0 and $0, respectively

5

—

—

(1)

4
Net current period other comprehensive income (loss)

9

7

(23)

(1)

(8)
September 30, 2020

$
(15)

$
45

$
(44)

$
(2)

$
(16)

~~(a)~~

~~Foreign currency translation adjustments were impacted by a decrease in the Canadian/U.S. dollar exchange rate from 0.7698 at December 31, 2019 to 0.7507 at September 30, 2020.~~


					Foreign		Post-
			Available-		Currency		Retirement
	Derivative		for-Sale		Translation		Benefit
	Instruments		Securities		Adjustments		Obligations		Total
Balance, December 31, 2020	$	(9)	$	49	$	(1)	$	—	$	39
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $0, $(1), $0 and $0, respectively		—		(2)		26		—		24
Amounts reclassified from accumulated other comprehensive (income) loss, net of tax (expense) benefit of $3, $0, $0 and $0, respectively		7		—		—		—		7
Net current period other comprehensive income (loss)		7		(2)		26		—		31
Balance, June 30, 2021	$	(2)	$	47	$	25	$	—	$	70

We entered into interest rate derivatives during 2020, all of which were classified as a cash flow hedges and are discussed further in Note 3. We had 0 active derivatives outstanding during 2019. Amounts reclassified out of accumulated other comprehensive income (loss) associated with our previously terminated cash flow hedges were not material for the periods presented.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Common Stock Repurchase Program

The Company repurchases shares of its common stock as part of capital allocation programs authorized by our Board of Directors. In February ~~2020,~~2021, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase ~~$313~~$250 million of our common stock. At the beginning of the repurchase period, we delivered ~~$313~~$250 million cash and received ~~2.0~~1.8 million shares based on a stock price of ~~$125.75.~~$110.56. The ASR agreement completed in ~~March 2020,~~the second quarter of 2021, at which time we received ~~0.8~~0.2 million additional shares based on a final weighted average price of ~~$111.78.~~$126.83.

~~During the first quarter of 2020,~~In May 2021, we ~~also began repurchasing shares~~entered into an ASR agreement to repurchase $250 million of our common ~~stock in open market transactions in compliance with Rule 10b5-1 and Rule 10b-18~~stock. At the beginning of the ~~Exchange Act. This~~ repurchase ~~program ended~~period, we delivered $250 million cash and received 1.4 million shares based on ~~March 27, 2020~~a stock price of $141.42. The final number of shares to be repurchased and ~~we repurchased 0.9 million shares. Cash paid for these share repurchases was $89 million, inclusive of per-share commissions, which represents a weighted~~the final average price per share under the ASR agreement will depend on the volume-weighted average price of ~~$99.96.~~our stock, less a discount, during the term of the agreement. Purchases under the ASR agreement are expected to be completed in July 2021.

As of ~~September~~June 30, ~~2020,~~2021, the Company has authorization for ~~$918~~$850 million of future share repurchases. To enhance our liquidity position in response to COVID-19 as well as funding of the Advanced Disposal acquisition, we elected to temporarily suspend additional share repurchases for the foreseeable future. Any future share repurchases pursuant to this authorization of our Board of Directors will be made at the discretion of management and will depend on factors similar to those considered by the Board of Directors in making dividend declarations, including our net earnings, financial condition and cash required for future business plans, growth and acquisitions.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

12. Fair Value Measurements

Assets and Liabilities Accounted for at Fair Value

Our assets and liabilities that are measured at fair value on a recurring basis include the following (in millions):


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Fair Value Measurements Using:
Quoted prices in active markets (Level 1):
Cash equivalents and money market funds(a)	$	695	$	3,527	$	87	$	530
Significant other observable inputs (Level 2):
Available-for-sale securities ~~(a)~~(b)		386		350		447		390
Interest rate derivatives		4		—
Significant unobservable inputs (Level 3):
Redeemable preferred stock (b)		49		49
Redeemable preferred stock (c)						49		49
Total Assets	$	1,134	$	3,926	$	583	$	969

(a)	The decrease is primarily due to the use of available cash to retire certain high-coupon senior notes in May 2021, which is discussed further in Note 3.

(b)	Our available-for-sale securities ~~generally mature~~primarily relate to debt securities with maturities over the next nine years.

~~(b)~~(c)

When available, Level 3 investments have been measured based on third-party investors’ recent or pending transactions in these securities, which are considered the best evidence of fair value. When this evidence is not available, we use other valuation techniques as appropriate and available. These valuation methodologies may include transactions in similar instruments, discounted cash flow techniques, third-party appraisals or industry multiples and public company comparable transactions.

See Note 8 for information related to the nonrecurring fair value measurement of assets and liabilities acquired in connection with our acquisition of Advanced Disposal. See Note 9 for information related to our nonrecurring fair value measurements and the impact of impairments.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value of Debt

As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the carrying value of our debt was ~~$10.4~~$13.2 billion and ~~$13.5~~$13.8 billion, respectively. The estimated fair value of our debt was approximately ~~$11.7~~$14.0 billion and ~~$14.5~~$15.2 billion as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The decrease in the fair value of ~~our~~ debt ~~when comparing September 30, 2020 to December 31, 2019~~ is primarily related to net repayments of ~~$3.1 billion~~$619 million during ~~2020 partially offset by fluctuations~~2021 and the replacement of debt balances with a relatively high fair value to carrying value ratio with new debt with a fair value that approximates carrying value (refer to Note 3 for additional information) and increases in current market rates ~~for similar types~~ of ~~debt instruments.~~our senior notes.

Although we have determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The use of different assumptions or estimation methodologies could have a material effect on the estimated fair values. The fair value estimates are based on Level 2 inputs of the fair value hierarchy available as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. These amounts have not been revalued since those dates, and current estimates of fair value could differ significantly from the amounts presented.

13. Variable Interest Entities

Following is a description of our financial interests in unconsolidated and consolidated variable interest entities that we consider significant:

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Low-Income Housing Properties ~~and Refined Coal Facility Investments~~

We do not consolidate our investments in entities established to manage low-income housing properties ~~and a refined coal facility~~ because we are not the primary beneficiary of these entities as we do not have the power to individually direct the activities of these entities. Accordingly, we account for these investments under the equity method of accounting. Our aggregate investment balance in these entities was ~~$243~~$207 million and ~~$309~~$228 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The debt balance related to our investments in low-income housing properties was ~~$226~~$183 million and ~~$269~~$210 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. During the first quarter of 2020, the entity which holds the investment in the refined coal facility sold the majority of its assets, which resulted in a $7 million non-cash impairment of our investment. Additional information related to these investments is discussed in Note 4.

Trust Funds for Final Capping, Closure, Post-Closure or Environmental Remediation Obligations

Unconsolidated Variable Interest Entities — Trust funds that are established for both the benefit of the Company and the host community in which we operate are not consolidated because we are not the primary beneficiary of these entities as (i) we do not have the power to direct the significant activities of the trusts or (ii) power over the trusts’ significant activities is shared. Our interests in these trusts are accounted for as investments in unconsolidated entities and receivables. These amounts are recorded in other receivables, investments in unconsolidated entities and long-term other assets in our Condensed Consolidated Balance Sheets, as appropriate. We also reflect our share of the unrealized gains and losses on available-for-sale securities held by these trusts as a component of our accumulated other comprehensive income (loss). Our investments and receivables related to these trusts had an aggregate carrying value of ~~$101~~$109 million and $106 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively.

Consolidated Variable Interest Entities — Trust funds for which we are the sole beneficiary are consolidated because we are the primary beneficiary. These trust funds are recorded in restricted trust and escrow accounts in our Condensed Consolidated Balance Sheets. Unrealized gains and losses on available-for-sale securities held by these trusts are recorded as a component of accumulated other comprehensive income (loss). These trusts had a fair value of ~~$112~~$117 million and ~~$109~~$114 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~14. Subsequent Events~~

On October 30, 2020, we closed our acquisition of Advanced Disposal, which is discussed further in Note 8. We are currently in the process of valuing the assets acquired and liabilities assumed in the business combination. As a result, we are not yet able to provide the amounts to be recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed and other related disclosures. We will disclose this and other related information in our Form 10-K for the year ended December 31, 2020. Total enterprise value of the acquisition was $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt and is subject to post-closing adjustments. The acquisition was funded using our $3.0 billion revolving credit facility and commercial paper borrowings. Refer to Note 3 for further discussion of our $3.0 billion revolving credit facility and commercial paper program.

We and Advanced Disposal entered into a Divestiture Agreement that provided for GFL Environmental Inc. to acquire a combination of assets from us and Advanced Disposal to address divestitures required by the U.S. Department of Justice in connection with the Advanced Disposal acquisition. Immediately following the Merger Agreement closing on October 30, 2020, the transactions contemplated by the Divestiture Agreement were consummated and the Company received cash proceeds from the sale of $856.4 million, subject to certain post-closing adjustments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included under Item 1 and our Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

This Quarterly Report on Form 10-Q contains certain forward-looking statements that are made subject to the safe harbor protections provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend,” and words of a similar nature and include estimates or projections of financial and other data; comments on expectations relating to future periods; plans or objectives for the future; and statements of opinion, view or belief about current and future events, circumstances or performance. You should view these statements with caution. They are based on the facts and circumstances known to us as of the date the statements are made. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to ~~increased competition; pricing actions;~~ failure to implement our optimization, growth, and cost savings initiatives and overall business strategy; failure to identify acquisition targets and negotiate attractive terms; failure to consummate or integrate acquisitions; failure to obtain the results anticipated from acquisitions; failure to successfully integrate the acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”), realize anticipated synergies or ~~other acquisitions; failure to~~ obtain ~~the~~other results anticipated from ~~the acquisition of Advanced Disposal or other acquisitions;~~such acquisition; environmental and other regulations, including developments related to emerging contaminants, gas emissions and renewable fuel; ~~commodity price fluctuations; international trade restrictions; weakness~~significant environmental, safety or other incidents resulting in ~~general economic conditions~~liabilities or brand damage; failure to obtain and ~~capital markets;~~maintain necessary permits; failure to attract, hire and retain key team members and a high quality workforce; labor disruptions and wage-related regulations; significant storms and destructive climate events; public health risk and other impacts of COVID-19 or similar pandemic conditions, including increased costs, social and commercial disruption and service ~~reductions and other adverse effects on our business, financial condition, results of operations and cash flows; failure to obtain and maintain necessary permits;~~reductions; increased competition; pricing actions; commodity price fluctuations; international trade restrictions; disposal alternatives and waste diversion; declining waste volumes; weakness in general economic conditions and capital markets; adoption of new tax legislation; fuel shortages; failure to develop and protect new technology; failure of technology to perform as expected, including implementation of a new enterprise resource planning system; failure to prevent, detect and address cybersecurity incidents or comply with privacy regulations; ~~significant environmental or other incidents resulting in liabilities and brand damage; significant storms and destructive events influenced by climate change; labor disruptions; impairment charges;~~ negative outcomes of litigation or governmental ~~proceedings~~proceedings; decisions or developments that result in impairment charges and other risks discussed in our filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020. The Company is optimistic about volume recovery and overall economic recovery as ~~updated by Part II, Item 1A.~~ ~~Risk Factors~~~~, included~~states and local jurisdictions continue lifting previous restrictions related to the COVID-19 pandemic. However, uncertainty remains with respect to the pace of economic recovery, as well as the potential for resurgence in transmission of COVID-19 and related business closures due to virus variants or otherwise. Such conditions could have an unanticipated adverse impact on our ~~Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.~~business. We assume no obligation to update any forward-looking statement, including financial estimates and forecasts, whether as a result of future events, circumstances or developments or otherwise.

Overview

We are North America’s leading provider of comprehensive waste management environmental ~~services.~~services, providing services throughout the United States (“U.S.”) and Canada. We partner with our residential, commercial, industrial and municipal customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. We own or operate the largest network of landfills in ~~North America.~~the U.S. and Canada. In order to make disposal more practical for larger urban markets, where the distance to landfills is typically farther, we manage transfer stations that consolidate, compact and transport waste efficiently and economically. We also use waste to create energy, recovering the gas produced naturally as waste decomposes in landfills and using the gas in generators to make ~~electricity.~~electricity or natural gas. Additionally, we are a leading recycler in ~~North America,~~the U.S. and Canada, handling materials that include paper, cardboard, glass, plastic and metal. Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provides collection, transfer, disposal, and recycling and resource recovery services. ~~Through~~Consistent with our ~~subsidiaries,~~Company’s long-standing commitment to corporate sustainability and environmental stewardship, we ~~are also~~published our 2020 Sustainability Report, which details our commitment

to help make the communities in which we live and work safe, resilient and sustainable. The information in this report can be found at https://sustainability.wm.com but does not constitute a ~~leading developer, operator~~part of, and ~~owner of landfill gas-to-energy facilities in the United States (“U.S.”).~~is not incorporated by reference into this Quarterly Report on Form 10-Q.

Our Solid Waste operating revenues are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations. Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the disposal facility or

material recovery facility and our disposal costs. Revenues from our landfill operations consist of tipping fees, which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Recycling revenues generally consist of tipping fees and the sale of recycling commodities to third parties. The fees we charge for our services generally include our environmental fee, fuel surcharge and regulatory recovery fee which are intended to pass through to customers direct and indirect costs incurred. We also provide additional services that are not managed through our Solid Waste business, described under Results of Operations below.

Acquisition of Advanced Disposal

On October 30, 2020, we completed our acquisition of all outstanding shares of Advanced Disposal for $30.30 per share in cash, pursuant to an Agreement and Plan of Merger dated April 14, 2019, as amended on June 24, 2020. Total enterprise value of the acquisition was $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt. This acquisition grows our footprint and allows us to provide differentiated, sustainable waste management and recycling services to approximately three million new commercial, industrial and residential customers primarily located in the Eastern half of the U.S. The acquisition was funded using a $3.0 billion, 364-day, U.S. revolving credit facility and our commercial paper program. In November 2020, we issued $2.5 billion of senior notes and used a portion of the proceeds to repay all outstanding borrowings under the $3.0 billion, 364-day, U.S. revolver and terminated the facility. As a result of the acquisition we recorded $4.1 billion of net assets including $2.5 billion of goodwill as of December 31, 2020. During the first half of 2021, we made significant progress on our integration of Advanced Disposal. The focus of these efforts has been to ensure that we continue to provide uninterrupted service to our customers through the integration of certain customer facing and back office digital platforms.

COVID-19 Update

In January 2020, a novel strain of coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern and was subsequently declared a global pandemic in March 2020. We have contingency plans in place to ensure continuity of operations at our collection sites, transfer stations, landfills and recycling facilities. These plans ensure that we are in compliance with federal, state, provincial and local guidelines. Key elements of our business continuity plan have been executed consistently across the organization. Our safety team has medical experts and industrial hygienists that are continuously monitoring and incorporating guidance from relevant authorities. To date our existing personal protective equipment, hygiene and operating procedures comply with guidelines established to protect our employees from additional risks associated with COVID-19.

The COVID-19 pandemic and related measures have had a significant adverse impact on many sectors of the economy. Waste Management provides essential services to a diverse customer base and, as a result, many elements of our business are less exposed to variability. Despite these favorable attributes of our business model, we expect the impacts of COVID-19 on our business to continue for the remainder of the year.

~~COVID-19 began to impact our business in mid-March 2020, the results of which are described in detail under~~ ~~Results of Operations~~ ~~below. The challenges posed by~~Throughout the COVID-19 pandemic, on the global economy increased rapidly at the end of the first quarter of 2020 and have continued through the date of this report, impacting our business in most geographies and across a variety of our customer types. Steps taken by national and local governments to slow the spread of the virus, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing resulted in revenue declines at our landfills, as well as decreased demand from our industrial and commercial collection customers. Additionally, within the residential line of business, the cost to service our customers has increased as stay-at-home orders and continuing work-from-home trends have increased the waste we collect. While we have seen improvement in our landfill and industrial and commercial collection volumes, from the lowest levels observed in April 2020, uncertainty continues in the pace of business and economic recovery. In the event that cities and states pause or reverse re-openings, our improving volume trends could reverse in the near term.

~~The~~ Company has proactively taken steps to put our employees’ and customers’ needs first and we continue to work with the appropriate regulatory agencies to ensure we can provide our essential services safely and efficiently. ~~These efforts are, in some instances, reducing short-term revenues or increasing our costs, though they are sound decisions that reflect our~~We continue to operate with a focus on protecting the ~~long-term strength~~health and safety of our ~~business. Examples of these efforts include:~~

~~Employees~~ ~~— We have prioritized the health, safety~~employees and ~~financial security of our workforce. As local government bodies began to implement stay at home orders and as~~maintaining business ~~closures became more prevalent during the first half of 2020, key steps taken~~continuity for our workforce included (i) transitioning back-office employees to work-from-home; (ii) providing financial certainty to employees by guaranteeing all full-time hourly employees compensation for a 40-hour work week regardless of service decreases; (iii) securing additional personal protective equipment to bolster the safety and security of our workplaces and (iv) guaranteeing elements of incentive compensation to certain employees to reflect our appreciation for their dedication and focus on executing well in the face of the pandemic. During the third quarter, with many government bodies taking steps to re-open communities, we have returned many of our back-office employees to our offices safely and in accordance with federal and local laws and regulations.

~~Customers~~ — Our top priority with respect to our customers has been ensuring that essential waste service needs continue to be safely met despite the unprecedented changes encountered in their communities. During the initial months of the pandemic, we worked with customers impacted by the COVID-19 pandemic to waive and suspend certain ancillary service charges, defer certain annual price increases, extend payment terms, adjust customer service levels and provide qualifying small and medium businesses with one month of free service upon re-opening. Beginning in July, with communities and governments re-opening, social distancing and safety measures being adopted, and signs of an improving economy, we resumed fees and price increases in accordance with our contractual terms.

~~The above steps,~~customers. These efforts, combined with our disciplined execution in our daily operations, have positioned the Company to prudently manage the challenges presented by COVID-19.

The impacts of COVID-19 on the ~~COVID-19 pandemic. The fundamentals~~global economy increased rapidly during the second quarter of 2020, affecting our business in most geographies and across a variety of our customer types. Over the ~~Company continue to remain strong and we believe we~~last year, our volumes have ~~sufficient liquidity on hand to continue business operations during this volatile period.~~

~~We estimate that COVID-19 has had~~been recovering from the ~~following notable impacts on our results of operations for the three and nine months ended September 30, 2020:~~

~~Revenues~~ ~~— During the three and nine months ended September 30,~~sharp decline experienced in April 2020 ~~we experienced a negative impact to revenue of approximately $240 million and $680 million, respectively, that we attribute to reductions in customers’ waste service needs~~ as a result of COVID-19. ~~While~~The pace of recovery in our volumes accelerated in the ~~customer-centric steps discussed above have also contributed to this revenue decline, these impacts have been relatively immaterial~~second quarter of 2021 as more communities and businesses re-opened. The portions of our business that had the most pronounced decreases in volume due to the ~~overall revenue decline. As mentioned above,~~pandemic were our ~~volumes, particularly in our landfill and~~ industrial and commercial collection ~~lines~~businesses and construction and demolition and special waste volumes at our landfills. As we exited the second quarter of ~~businesses, have improved from the lows experienced in April 2020, though the pace of volume recovery has moderated in recent weeks.~~

~~Operating Expenses~~ — Volume-driven revenue declines and our strategic focus on proactive cost management led to a significant reduction in certain variable operating expenses. These reductions have been most significant in labor costs where we have focused on developing an optimal work week which reduces overtime hours, and maintenance and repairs. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines, which could have negatively impacted our operating costs as a percentage of revenues. Despite this, our proactive cost management efforts have positioned us to reduce our overall operating expenses as a percentage of revenues when compared with the prior year periods. These cost decreases have been partially offset by the impacts of (i) the 40-hour work week guarantee and (ii) increases in container weights in our residential collection line of business, which increased our overall cost to serve these customers. However, we are starting to see a decline2021, volumes in each of these ~~costs as volumes return and residential container weights normalize as schools and businesses~~lines of business were either on par with pre-pandemic levels or have now surpassed 2019 volumes. Volumes in our recycling business are ~~re-opening.~~

~~Selling, General and Administrative Expenses~~ ~~— COVID-19 impacts on our customers and related customer receipts has led~~also up primarily due to ~~an increase in~~ the ~~provision for bad debts for the nine months ended September 30, 2020. However,~~re-opening of facilities where we ~~are encouraged to see overall improvement in the provision for bad debts driven by successful collection efforts~~temporarily suspended operations during the ~~three months ended September 30, 2020. Additionally, during both~~pandemic. We continue to be optimistic about our volume recovery in 2021 as the ~~three~~economy continues to rebound and ~~nine months ended September 30, 2020 we incurred costs associated~~states and local jurisdictions continue re-opening. However, uncertainty remains with ~~transitioning back-office employees~~respect to ~~a work-from-home environment and costs related to employee pay guarantees.~~

~~The ultimate impacts of COVID-19 on our long-term outlook for~~ the ~~business will depend on future developments, including the duration of the pandemic and~~ pace of economic recovery. These factors and their impacts on our business, financial condition, results of operations and cash flows are uncertain and cannot be predicted at this time. We remain focused on the diligent and safe execution of our daily operations. Additionally, we are focused on ensuring that we emerge from this pandemic a stronger, more differentiated company positionedrecovery, as well as the ~~service provider~~potential for resurgence in transmission of ~~choice for~~COVID-19 and related business closures due to virus variants or otherwise. Such conditions could adversely impact our volumes and costs over the ~~long-term.~~remainder of the year.

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Strategy

Our fundamental strategy has not changed; we remain dedicated to providing long-term value to our stockholders by successfully executing our core strategy of focused differentiation and continuous improvement. We have enabled a people-first, technology-led focus, that leverages and sustains the strongest asset network in the industry to drive best-in-class customer experience and growth. Our strategic planning processes appropriately consider that the future of our business and the industry can be influenced by changes in economic conditions, the competitive landscape, the regulatory environment, asset and resource availability and technology. We believe that focused differentiation, which is driven by capitalizing on our unique and extensive network of assets, will deliver profitable growth and position us to leverage competitive advantages. Simultaneously, we believe the combination of cost control, enhancements to our digital platform, process improvement and operational efficiency will deliver on the Company’s strategy of continuous improvement and yield an attractive total cost structure and enhanced service quality. While we will continue to monitor emerging diversion technologies that may generate additional value and related market dynamics, our current attention will be on improving existing diversion technologies, such as our recycling operations. ~~We believe the execution of our strategy will deliver shareholder value and leadership in a dynamic industry and challenging economic environment.~~

Business Environment

The waste industry is a comparatively mature and stable industry. However, customers increasingly expect more of their waste materials to be recovered and those waste streams are becoming more complex. In addition, many state and local governments mandate diversion, recycling and waste reduction at the source and prohibit the disposal of certain types of waste at landfills. We monitor these developments to adapt our ~~services~~service offerings. As companies, individuals and communities look for ways to be more sustainable, we promote our comprehensive services that go beyond our core business of collecting and disposing of waste in order to meet their needs.

Despite some industry consolidation in recent years, we encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, service quality, customer experience and breadth of service offerings. Our industry is directly affected by changes in general economic factors, including increases and decreases in consumer spending, business expansions and construction activity. These factors generally correlate to volumes of waste generated and impact our revenue. Negative economic conditions, including the impact of COVID-19, can and have caused customers to reduce their service needs. Such negative economic conditions, in addition to competitor actions, can and have made it more challenging to implement our pricing strategy and negotiate, renew or expand service contracts with acceptable margins. We also encounter competition for acquisitions and growth opportunities. General economic factors and the market for consumer goods, in addition to regulatory developments, can also significantly impact commodity prices for the recyclable materials we sell. Significant components of our operating expenses vary directly as we experience changes in revenue due to volume. Volume changes can ~~vary~~fluctuate dramatically by line of business and ~~decreases in volumes~~volume changes in higher margin businesses, such as what we ~~have seen~~saw with COVID-19, can impact key financial ~~metrics, particularly operating expense as a percentage of revenue.~~metrics. In this type of environment, we must dynamically manage our cost structure.

Our financial results for the three and nine months ended September 30, 2020 reflect declines in our collection and disposal lines of business as a result of the negative impacts of COVID-19. These impacts began in March 2020 and continued through the third quarter of 2020, although we began to experience notable recoveries in volumes during the third quarter of 2020. Given the ongoing pressures on the business from COVID-19, we continue to take proactive steps to reduce costs and maximize cash flow. These steps include (i) optimizing our route structure to respond proactively to lower industrial and commercial collection volumes; (ii) implementing an optimal work week which reduces overtime hours; (iii) limiting hiring and optimizing the existing workforce through greatly improved retention and reduced turnover and (iv) reducing or eliminating certain non-essential costs and expenses like travel and entertainment. Additionally, to enhance our liquidity, we are maintaining a disciplined focus on capital management by aligning additional investments with the revenue generation of the business, reducing capital spending on our landfill assets, and managing container capital in conjunction with our customers’ volumes. We have also elected to temporarily suspend additional share repurchases for the remainder of 2020.

COVID-19 has also had impacts on the recycling line of business, including the creation of a short-term dislocation in the supply and demand dynamics for recycled commodities in the U.S. which increased market prices for certain commodities. While the recent decline in supply of recycled materials drove an increase in market prices for certain commodities, we continue to invest and seek opportunities for cost improvement as we remain steadfast in our commitment to improve the profitability and returns of the recycling line of business in any economic environment. We have maintained our focus on converting to a fee-based pricing model that addresses the cost of processing materials and the impact on our cost structure to manage contamination in the recycling stream.

We believe ~~that~~ the Company’s industry-leading asset network and strategic ~~focuses~~focus on investing in our people and ~~technology~~our digital platform will give the Company the necessary tools to address the evolving challenges ~~presented by~~impacting the ~~COVID-19 pandemic~~Company and ~~the impacts on~~ our industry. In line with our commitment to continuous improvement and a differentiated customer experience, we ~~are accelerating~~remain focused on our customer service digitalization initiative to change the way we interact with our customers. Enhancements made through this initiative are designed to seamlessly and digitally connect all the Company’s functions required to service our customers in order to provide the best experience and service. Additionally, we continue to make meaningful progress on the implementation of our new enterprise resource planning system.

During the second quarter of 2021, we began to see inflationary cost pressures, particularly in our operating costs and capital expenditures. As costs increase, we focus on our strategic pricing efforts, as well as operating efficiencies and cost controls, to maintain and grow our earnings and cash flow. With increased pressure from the strong economic recovery, particularly on labor, we remain focused on putting our people first to ensure that they are well positioned to diligently and safely execute our daily operations. We are encouraged by our results for the first half of 2021 and remain focused on

delivering outstanding customer service, managing our variable costs with changing volumes and investing in technology that will enhance our customers’ experience and reduce our cost to serve.

Current ~~Period~~Quarter Financial Results

During the ~~third~~second quarter of ~~2020,~~2021, we delivered strong operating income and cash flows ~~despite revenue declines~~as we continued to experience volume recovery in our landfill, commercial and industrial collection businesses and ~~disposal lines~~benefited from the acquisition of ~~business due to the COVID-19 pandemic. We continue to take intentional steps to decrease~~Advanced Disposal. Additionally, we maintained focus on reducing our operating costs and ~~eliminate~~ discretionary selling, general and administrative ~~expenses~~expenses. We allocated $396 million of available cash to ~~mitigate the impact from the declines in our volumes. In addition~~capital expenditures and $492 million to our ~~focus on reducing certain costs, we took proactive steps to manage our capital spending.~~shareholders through dividends and share repurchases.

Key elements of our financial results for the ~~current~~second quarter include:

●

Revenues of ~~$3,861~~$4,476 million, compared with ~~$3,967~~$3,561 million in the prior year period, ~~a decrease~~an increase of ~~$106~~$915 million, or ~~2.7%~~25.7%. ~~This~~The increase is ~~a significant improvement from~~primarily attributable to (i) strong volume growth; (ii) the ~~same comparison for the second quarter~~acquisition of 2020, where revenues declined by 9.8% on a year-over-year basis. In the third quarter of 2020, the year-over-year comparison continued to be negatively impacted by volume declines resulting from a reductionAdvanced Disposal; (iii) higher yield in customers’ waste service needs associated with the COVID-19 pandemic. In addition, the Company’s year-over-year revenue comparison was impacted by (i) a decline of $42 million from lower fuel surcharges due to a significant decrease in market rates for diesel fuel and (ii) natural disaster clean-up efforts in 2019. For the three and nine months ended September 30, 2020, natural disaster related events were inconsequential to our ~~results. These revenue declines have been partially offset by increases in revenue from~~ collection and disposal ~~yield,~~lines of business and (iv) increases in the market prices for recycling ~~yield driven by higher commodity prices;~~commodities we sell;

●

Operating expenses of ~~$2,332~~$2,736 million, or ~~60.4%~~61.1% of revenues, compared with ~~$2,441~~$2,180 million, or ~~61.5%~~61.2% of revenues, in the prior year period. The ~~$109~~$556 million ~~decrease~~increase is ~~directly related~~primarily attributable to ~~proactive steps taken to manage~~(i) volume increases; (ii) increased labor and support costs from our ~~variable costs in the lower volume environment. The revenue declines due to the COVID-19 pandemic have had a greater impact on our~~acquisition of Advanced Disposal; (iii) higher ~~margin business lines, which could have negatively impacted operating costs as a percentage of revenues. Despite this, our proactive~~market prices for recycling commodities and (iv) inflationary cost ~~management efforts positioned us to reduce overall operating expenses as a percentage of revenues when compared with the prior year period;~~increases;

●

Selling, general and administrative expenses of ~~$416~~$445 million, or ~~10.8%~~9.9% of revenues, compared with ~~$386~~$377 million, or ~~9.7%~~10.6% of revenues, in the prior year period. The ~~year-over-year~~$68 million increase is primarily attributable to (i) higher ~~long-term~~ incentive compensation costs; (ii) increased ~~acquisition-related costs;~~labor and support costs from our acquisition of Advanced Disposal and (iii) ~~higher costs associated with~~strategic investments in our ~~people and technology and (iv) costs incurred as a direct result of the COVID-19 pandemic.~~digital platform. These cost increases were partially offset by a decrease in ~~part, by~~ the ~~proactive steps that we have taken~~provision for bad debts due to ~~reduce discretionary expenses;~~an overall improvement in customer account collections;

●

Income from operations was ~~$680~~$791 million, or ~~17.6%~~17.7% of revenues, compared with ~~$734~~$527 million, or ~~18.5%~~14.8% of revenues, in the prior year period. The improved earnings in the current year are driven by (i) strong operating results in our collection and disposal business; (ii) improved profitability in our recycling business and (iii) our proactive ~~steps that~~cost management ~~has taken to control our costs~~efforts. The increase in ~~a period of volume decline has significantly mitigated the negative impact to our~~ income from ~~operations. However, the year-over-year comparison has been affected~~operations was partially offset by ~~(i)~~ higher ~~long-term incentive compensation costs; (ii) an increase in spending for~~depreciation and amortization expense, primarily due to the acquisition of Advanced Disposal; ~~(iii) investments we are making in technology and~~

(iv) net charges primarily related to non-cash impairments of certain assets within our WM Renewable Energy business and restructuring costs associated with our customer service and sales functions during the current year period;

●

Net income attributable to Waste Management, Inc. was ~~$390~~$351 million, or ~~$0.92~~$0.83 per diluted share, compared with ~~$495~~$307 million, or ~~$1.16~~$0.72 per diluted share, in the prior year period. InThe strong operating results discussed above, in addition to ~~the activity discussed above, net income~~lower interest expense, drove an increase in earnings which was substantially offset in the current period ~~was also impacted~~ by a ~~pre-tax~~$220 million loss ~~of $52 million associated with the~~on early extinguishment of ~~debt;~~debt related to the retirement of $1.3 billion of certain high-coupon senior notes through a cash tender offer;

●

Net cash provided by operating activities was ~~$1,029~~$1,043 million compared with ~~$952~~$856 million in the prior year period. We continued to generate strong cash from operations in the third quarter of 2020 due to the resilience of our business, improved customer receipts and deliberate steps we have taken to reduce our costs in response to lower volumes. Strong operating performance provided the foundation for the current quarter’s cash from operations, with the increase from the prior year quarterperiod, driven by ~~(i) favorable~~an increase in earnings, partially offset by net unfavorable changes in our operating assets and liabilities, net of effects of acquisitions and ~~divestitures; (ii) cash benefits associated with deferring certain payroll taxes as provided for by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and (iii) lower~~divestitures, primarily due to (i) higher income tax payments ~~due to~~in the current quarter; (ii) a ~~decrease~~temporary deferral in ~~pre-tax income~~the payment of payroll taxes in 2020 and (iii) the timing of ~~estimated~~cash tax ~~payments. These positive cash flow impacts have been partially offset by an increase~~benefits received in ~~interest payments related to debt incurred to position us to fund the Advance Disposal acquisition;~~2020 associated with federal alternative fuel tax credits; and

●

Free cash flow was ~~$691~~$649 million compared with ~~$478~~$423 million in the prior year ~~period. The increase in free cash flow is due to~~period primarily driven by the increase in net cash provided by operating activities ~~noted above and an intentional~~discussed above. The increase is also due to a reduction in capital expenditures ~~during the~~due to timing differences as well as supply chain constraints in advancing current year ~~period where we have taken proactive steps to reduce the amount of capital spending required to align with the lower volumes in our business.~~projects. Free cash flow is a non-GAAP measure of liquidity. Refer to Free Cash Flow below for our definition of free cash flow, additional information about our use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure.

Results of Operations

Operating Revenues


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Commercial	$	1,025	$	1,069	$	3,016	$	3,147	$	1,178	$	928	$	2,309	$	1,991
Residential		662		661		1,969		1,956		794		657		1,576		1,307
Industrial		709		766		2,027		2,190		811		625		1,554		1,318
Other collection		120		130		347		361		135		115		251		227
Total collection		2,516		2,626		7,359		7,654		2,918		2,325		5,690		4,843
Landfill		946		993		2,707		2,880		1,075		874		1,990		1,761
Transfer		482		471		1,362		1,357		532		439		997		880
Recycling		290		245		819		800		397		275		739		529
Other (a)		458		469		1,297		1,345		513		409		990		839
Intercompany (b)		(831)		(837)		(2,393)		(2,427)		(959)		(761)		(1,818)		(1,562)
Total	$	3,861	$	3,967	$	11,151	$	11,609	$	4,476	$	3,561	$	8,588	$	7,290

(a)	The “Other” line of business includes (i) certain services provided by our WMSBS business; (ii) our landfill gas-to-energy operations; (iii) certain services within our EES business, including our construction and remediation services and our services associated

with the disposal of fly ash and (iv) certain other expanded service offerings and solutions. In addition, our “Other” line of business reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity. ~~Activity related~~Revenue attributable to collection, landfill, transfer and recycling ~~within~~services provided by our “Other” businesses has been ~~reclassified to~~reflected as a component of the ~~appropriate~~relevant line of business for purposes of ~~the~~ presentation in this table.

(b)	Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included within this report.

The following table provides details associated with the period-to-period changes in revenues and average yield (dollars in millions):


	Period-to-Period Change for the Three Months Ended September 30, 2020 vs. 2019									Period-to-Period Change for the Nine Months Ended September 30, 2020 vs. 2019							Period-to-Period Change for the Three Months Ended June 30, 2021 vs. 2020									Period-to-Period Change for the Six Months Ended June 30, 2021 vs. 2020
			As a % of				As a % of				As a % of				As a % of				As a % of				As a % of				As a % of				As a % of
			Related				Total				Related				Total				Related				Total				Related				Total
	Amount		Business(a)		Amount		Company(b)		Amount		Business(a)		Amount		Company(b)		Amount		Business(a)		Amount		Company(b)		Amount		Business(a)		Amount		Company(b)
Collection and disposal	$	93	2.6	%					$	220	2.1	%					$	118	3.7	%					$	211	3.2	%
Recycling commodities (c)		39	16.6							4	0.6
Recycling (c)																		84	32.9							181	37.4
Fuel surcharges and mandated fees		(42)	(27.3)							(118)	(25.3)							46	44.3							37	15.4
Total average yield (d)					$	90	2.3	%					$	106	0.9	%					$	248	7.0	%					$	429	5.9	%
Volume						(197)	(5.0)							(593)	(5.1)							341	9.6							240	3.3
Internal revenue growth						(107)	(2.7)							(487)	(4.2)							589	16.6							669	9.2
Acquisitions						4	—							43	0.4							316	8.9							618	8.5
Divestitures						(1)	—							(3)	—							(11)	(0.3)							(21)	(0.3)
Foreign currency translation						(2)	—							(11)	(0.1)							21	0.5							32	0.4
Total					$	(106)	(2.7)	%					$	(458)	(3.9)	%					$	915	25.7	%					$	1,298	17.8	%

(a)	Calculated by dividing the increase or decrease for the current year period by the prior year period’s related business revenue adjusted to exclude the impacts of divestitures for the current year period.

(b)	Calculated by dividing the increase or decrease for the current year period by the prior year period’s total Company revenue adjusted to exclude the impacts of divestitures for the current year period.

(c)	Includes ~~combined~~the impact of commodity price variability and changes in fees.

(d)	The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company.

The following provides further details associated with our period-to-period change in revenues:

Average Yield

Collection and Disposal Average Yield — This measure reflects the effect on our revenue from the pricing activities of our collection, transfer and landfill ~~lines of business,~~operations, exclusive of volume changes. Revenue growth from collection and disposal average yield includes not only base rate changes and environmental and service fee ~~increases,~~fluctuations, but also (i) certain average price changes related to the overall mix of services, which are due to the types of services provided; (ii) changes in average price from new and lost business and (iii) price decreases to retain customers.

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The details of our revenue growth from collection and disposal average yield are as follows (dollars in millions):


	Period-to-Period Change for the				Period-to-Period Change for the				Period-to-Period Change for the				Period-to-Period Change for the
	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2020 vs. 2019				September 30, 2020 vs. 2019				June 30, 2021 vs. 2020				June 30, 2021 vs. 2020
			As a % of				As a % of				As a % of				As a % of
			Related				Related				Related				Related
	Amount		Business		Amount		Business		Amount		Business		Amount		Business
Commercial	$	34	3.4	%	$	73	2.5	%	$	37	4.2	%	$	68	3.6	%
Industrial		21	3.0			51	2.5			35	5.8			57	4.5
Residential		22	3.5			50	2.6			29	4.7			56	4.5
Total collection		77	3.2			174	2.5			101	4.6			181	4.0
Landfill		7	1.1			24	1.3			10	1.7			17	1.5
Transfer		9	3.6			22	3.0			7	2.9			13	2.8
Total collection and disposal	$	93	2.6	%	$	220	2.1	%	$	118	3.7	%	$	211	3.2	%

Our overall strategic pricing efforts ~~that~~ are focused on improving our average unit rate have proven to be effective, despite the COVID-19 pandemic, particularly in our commercial business. During the second quarter of 2020, in order to support the continuity of our customers’ businesses, we made certain customer-centric pricing decisions such as temporarily waiving and suspending certain ancillary service charges as well as ~~delaying~~recovering any inflationary cost increases. This strategy has been most successful in our collection line of business where we experienced average yield growth of 4.6% and 4.0% for the three and six months ended June 30, 2021, respectively. We are driving improvements in our residential line of business, aligning the price ~~increases in certain markets,~~charged for services we provide to our customers with the costs to provide the services, which ~~negatively impacted our year-to-date average yield. However, beginning in July 2020, we resumed fees and price increases in accordance with contractual terms and~~has increased our average yield ~~rebounded~~4.7% and 4.5% for the three and six months ended June 30, 2021, respectively, as ~~expected.~~compared with the prior year periods. We are also continuing to see solid growth in our landfill and transfer businesses with our municipal solid waste business experiencing 2.8% and 2.7% average yield growth for the three and six months ended June 30, 2021, respectively, as compared with the prior year periods.

Recycling ~~Commodities~~ — Improved profitability in our recycling business primarily from higher market prices for recycling commodities and volume recovery from facilities where we temporarily suspended operations during the pandemic resulted in revenue growth of $84 million and $181 million for the three months and six months ended June 30, 2021, respectively, as compared with the prior year periods. During the three and six months ended ~~September~~June 30, ~~2020, there was a 33% increase in~~2021, average market prices for recycling commodities at the ~~recycled commodities we sell when~~Company’s facilities were approximately 75% and 90% higher, respectively, as compared to the prior ~~year. The significant~~year periods. We currently expect the year-over-year increase ~~was driven by a short-term dislocation in supply and demand dynamics for recycled materials, largely due~~ to COVID-19 decreases in the supply of recycled materials. For the nine months ended September 30, 2020, average market prices for recycled commodities increased approximately 7% compared to the prior year. We expect market pricing levels to remain relatively flatcontinue for the remainder of 2021 as we see strong demand for recycled materials outpacing supply, driven by the ~~year. While these prices are meaningfully higher than 2019 market~~growth in e-commerce, businesses re-opening, and manufacturers committing to use more recycled content in their packaging. We have also maintained our focus on converting to a fee-based pricing ~~levels, they continue to be well below long-term averages.~~model that ensures fees paid by customers address the cost of processing materials and the impact on our cost structure of managing contamination in the recycling stream.

Fuel Surcharges and Mandated Fees — These fees, which are predominantly generated by our fuel surcharge program, ~~declined $42~~increased $46 million and ~~$118~~$37 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, as compared with the prior year periods. These revenues are based on and fluctuate in response to changes in the national average prices for diesel ~~fuel. Given the downturn~~fuel, and also vary with changes in ~~oil and gas markets, market~~our volume-based revenue activity. Market prices for diesel fuel ~~decreased~~increased approximately ~~20%~~30% and 15% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, as compared with the prior year periods. ~~Additionally, we have taken steps to transition certain customers’ pricing away from non-variable fuel structures, which has further contributed to the year-over-year decline.~~

The mandated fees are primarily related to fees and taxes assessed by various state, county and municipal government agencies at our landfills and transfer stations. These amounts have not significantly impacted the change in revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021, as compared with the prior year periods.

Volume

Our revenues from volumes (excluding volumes from acquisitions and divestitures) ~~decreased $197~~increased $341 million, or ~~5.0%~~9.6%, and ~~$593~~$240 million, or ~~5.1%~~3.3%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, as compared with the prior year periods.

~~Beginning~~Over the last year, our volumes have been recovering from the sharp decline experienced in ~~March~~April 2020 ~~and continuing throughout the third quarter of 2020, our industrial and commercial collection and landfill businesses experienced significant volume declines~~ as a result of ~~the COVID-19 pandemic. While we have seen improvement~~COVID-19. The pace of recovery in our ~~landfill and industrial and commercial collection~~ volumes from the lowest levels observed in April 2020, our volumes continue to be meaningfully below prior year, particularly in special waste and construction and demolition volumes at the landfill and project-driven workaccelerated in the ~~industrial collection business. We are optimistic about~~second quarter of 2021 as more communities and businesses re-opened. The portions of our business that had the most pronounced decreases in volume due to the pandemic

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were our industrial and commercial collection businesses and construction and demolition and special waste volumes at our landfills. As we exited the ~~improving trend seen over~~second quarter of 2021, volumes in each of these lines of business were either on par with pre-pandemic levels or have now surpassed 2019 volumes. Volumes in our recycling business are also up primarily due to the ~~course~~re-opening of facilities where we temporarily suspended operations during the ~~third quarter, during which we saw sequential improvement in almost every part of~~pandemic. We continue to be optimistic about our ~~business. However, we remain cautious about the extent of~~ volume recovery in 2021 as ~~we have seen~~the economy continues to rebound and states and local jurisdictions continue re-opening. However, uncertainty remains with respect to the pace of ~~such~~economic recovery, ~~moderate~~as well as the potential for resurgence in ~~recent weeks,~~transmission of COVID-19 and ~~there remains risk that private~~related business closures due to virus variants or otherwise. Such conditions could adversely impact our volume results over the remainder of the year.

Acquisitions

Revenues increased $316 million, or 8.9%, and ~~government bodies could pause~~$618 million, or ~~reverse re-openings in response to COVID-19 developments. Additionally, while natural disaster clean-up efforts benefited our 2019 volumes, they were inconsequential to our results~~8.5%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021, respectively, as compared with the prior year periods, primarily due to our acquisition of Advanced Disposal. The revenue increase due to the Advanced Disposal acquisition was principally in our collection and disposal lines of business.

Operating Expenses

The following table summarizes the major components of our operating expenses (in millions of dollars and as a percentage of revenues):


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,								September 30,								June 30,								June 30,
	2020				2019				2020				2019				2021				2020				2021				2020
Labor and related benefits	$	682	17.7	%	$	717	18.1	%	$	2,007	18.0	%	$	2,087	18.0	%	$	791	17.7	%	$	636	17.9	%	$	1,537	17.9	%	$	1,325	18.2	%
Transfer and disposal costs		293	7.6			304	7.7			838	7.5			867	7.5			298	6.7			267	7.5			572	6.7			545	7.5
Maintenance and repairs		325	8.4			345	8.7			963	8.6			1,012	8.7			395	8.8			303	8.5			769	8.9			638	8.8
Subcontractor costs		389	10.1			404	10.2			1,117	10.0			1,140	9.8			446	10.0			357	10.0			837	9.7			728	10.0
Cost of goods sold		141	3.6			123	3.1			399	3.6			435	3.7			211	4.7			140	3.9			392	4.6			258	3.5
Fuel		61	1.6			101	2.5			194	1.7			306	2.6			95	2.1			57	1.6			181	2.1			133	1.8
Disposal and franchise fees and taxes		157	4.1			164	4.1			446	4.0			471	4.1			177	3.9			144	4.0			333	3.9			289	4.0
Landfill operating costs		91	2.3			92	2.3			292	2.6			283	2.4			107	2.4			92	2.6			203	2.3			201	2.8
Risk management		70	1.8			69	1.7			201	1.8			204	1.8			81	1.8			62	1.7			154	1.8			131	1.8
Other		123	3.2			122	3.1			384	3.5			377	3.3			135	3.0			122	3.5			272	3.2			261	3.5
	$	2,332	60.4	%	$	2,441	61.5	%	$	6,841	61.3	%	$	7,182	61.9	%	$	2,736	61.1	%	$	2,180	61.2	%	$	5,250	61.1	%	$	4,509	61.9	%

~~As discussed above~~Our operating expenses for the three and six months ended June 30, 2021 increased primarily due to volume increases and the acquisition of Advanced Disposal. During the second quarter of 2021, we began to see inflationary cost pressures as well as increased overtime from driver shortages that increased our operating costs. Although our costs increased, efforts to recover higher costs through price and the significant revenue increases in ~~Operating Revenues~~~~, year-over-year decreases in~~our high-margin businesses, which include our landfill and commercial and industrial ~~and commercial~~ collection ~~volumes, primarily due to the impacts~~businesses, resulted in a reduction of COVID-19, have significantly impacted the three and nine months ended September 30, 2020. The reductions in most operating expense categories during the reported periods are directly related to proactive steps taken to manage our variable costs in the lower volume environment. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines, which could have negatively impacted operating costs as a percentage of revenues. Despite this, our proactive cost management efforts positioned us to reduce our overall operating expenses as a percentage of revenues when compared with the prior year periods. Additionally, our operating expenses as a percentage of revenues benefited from our focus on operating efficiency, continued efforts to control costs as volumes grow and our disciplined integration of Advanced Disposal which historically has generated lower margins.

Significant items affecting the comparability of operating expenses for the reported periods include:

Labor and Related Benefits — The ~~decrease~~increase in labor and related benefits costs was largely driven by ~~decreases in~~(i) increased labor and support costs related to of our acquisition of Advanced Disposal; (ii) merit and proactive market wage adjustments to hire and retain talent; (iii) volume increases, particularly in our commercial and industrial ~~and commercial~~ collection ~~businesses. Our proactive steps positioned us to (i) optimize our route structure to respond to lower industrial and commercial collection volumes and (ii) implement an optimal work week~~businesses, which ~~reduces overtime hours. Additionally, the decrease was attributable to (i) improved efficiency including from lighter road traffic and optimizing~~when combined with driver schedules; (ii) lower headcount due to employee attrition coupled with proactive steps to defer hiring due to COVID-19 driven uncertainty and (iii) lower annual incentive compensation. Additionally, for the nine month comparison, labor and related benefits were impacted by reducedshortages in certain markets, increased overtime; (iv) increases in health and welfare costsattributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020 and (v) higher incentive compensations costs. ~~These decreases were partially offset by annual merit increases.~~

Transfer and Disposal Costs— The ~~decrease~~increase in transfer and disposal costs was largely driven by ~~volume declines in our industrial and commercial collection businesses~~additional disposal costs as a result of ~~COVID-19.~~our acquisition of Advanced Disposal, increased volume and inflationary cost increases from our third-party haulers.

Maintenance and Repairs — The ~~decrease~~increase in maintenance and repairs costs was largely driven by ~~proactive steps~~(i) our acquisition of Advanced Disposal, including intentional investments in the fleet acquired to ~~optimize routes~~bring the trucks to WM standards; (ii) additional fleet maintenance driven by commercial and ~~reduce overtime hours~~industrial volume increases; (iii) an increase in container repairs driven by volume increases and delays in normal-course capital expenditures for steel containers due to ~~address the volume declines discussed above. The most significant components of our non-labor savings was on third-party services,~~both steel costs and supply chain constraints and (iv) inflationary cost increases for parts, supplies ~~building costs~~ and ~~container repairs. In addition, the nine months ended September 30, 2019, was impacted by a $16 million non-cash charge to write off certain equipment costs related to our Other segment.~~third-party services.

Subcontractor Costs — The ~~decrease~~increase in subcontractor costs ~~for the three and nine months ended September 30, 2020,~~ was largely driven by ~~COVID-19 related volume declines in our industrial collection business. Additionally,~~(i) the ~~decrease for the three month period was due to lower costs in our EES business due to some projects ending during the third and fourth quarters~~acquisition of ~~the prior year and some projects scaling down during 2020. These declines were partially offset by~~Advanced Disposal; (ii) an increase in ~~business activity~~volumes in our WMSBS ~~business. Our WMSBS and EES businesses rely~~business, which relies more extensively on subcontracted hauling than our collection and disposal ~~business.~~business and (iii) inflationary cost increases from third-party haulers.

Cost of Goods Sold — Market prices for recycled commodities is the primary driver for the variability in our cost of goods sold. Cost of goods sold for the three months ended September 30, 2020 increased when compared to the prior year due to anThe increase in ~~the market prices for recycled commodities, partly offset by a decline in recycling volumes. For the nine month comparison,~~ cost of goods sold ~~decreased as compared~~was primarily driven by increases in market prices for recycling commodities of approximately 75% and 90% during the three and six months ended June 30, 2021, respectively. Tons processed also increased from prior year primarily due to the ~~prior year period in spite~~re-opening of facilities where operations were temporarily suspended during the ~~increase in commodity prices. This is largely due to lower recycling volumes due to COVID-19, coupled with a higher percentage of our overall recycled commodity sales targeted at domestic markets.~~pandemic.

Fuel — The ~~decrease~~increase in fuel costs was primarily due to (i) ~~a period-over-period benefit from federal alternative fuel credits; (ii) a~~ ~~decline~~increases of approximately 30% and 15% in market fuel prices ~~for diesel fuel;~~during the three and six months ended June 30, 2021, respectively, as compared with the prior year periods; (ii) volume increases in our commercial and industrial collection businesses and (iii) ~~lower costs resulting from~~ the ~~continued conversion~~acquisition of ~~our fleet to natural gas vehicles and (iv) volume declines.~~Advanced Disposal.

Disposal and Franchise Fees and Taxes — The ~~decrease~~increase in disposal and franchise fees and taxes ~~for~~as compared with the ~~reported~~prior year periods was primarily ~~related to lower volumes in our landfill line of business, largely~~ driven by ~~the impact~~landfill volume increases and additional costs attributable to our acquisition of ~~COVID-19.~~Advanced Disposal.

Landfill Operating Costs — The increase in landfill operating costs for the ~~nine~~three and six months ended ~~September~~June 30, ~~2020,~~2021 was primarily due to ~~higher~~volume increases and the Advanced Disposal acquisition. These increases were partially offset by lower leachate management costs ~~compared~~primarily due to the ~~prior year period.~~ cessation of certain transportation costs in our Tier 3 segment.

Additionally, the ~~nine month periods included charges~~increase in landfill operating costs for the six months ended June 30, 2021 was partially offset by the impacts of ~~$10 million~~changes in the measurement of our environmental remediation obligations and recovery assets in both the first quarter of 2020 and ~~$7 million in the second quarter~~2021. Our measurement of ~~2019, due to decreases in the~~these balances includes application of a risk-free discount rate, which is based on the rate for U.S. Treasury ~~bonds, used~~bonds. In the first quarter of 2021, there was an increase in the ~~measurement~~discount rate, which resulted in a reduction in the net liability balance and a credit to expense. Conversely, in the first quarter of 2020, there was a decrease in the discount rate, which resulted in an increase in the net liability balance and a charge to expense.

Risk Management — The increase in risk management costs was primarily due to our ~~environmental remediation obligations~~acquisition of Advanced Disposal, and ~~recovery assets. This increase was~~to a lesser extent, unusually low claims during the second quarter of 2020 that we attribute to the COVID-19 driven decline in business activity.

Other— Other operating cost increases were due to our acquisition of Advanced Disposal, partially offset by ~~declining volumes at our landfills.~~a favorable litigation settlement in the second quarter of 2021 and asset sales.

Selling, General and Administrative Expenses

The following table summarizes the major components of our selling, general and administrative expenses (in millions of dollars and as a percentage of revenues):


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,								September 30,								June 30,								June 30,
	2020				2019				2020				2019				2021				2020				2021				2020
Labor and related benefits	$	274	7.1	%	$	254	6.4	%	$	748	6.7	%	$	769	6.6	%	$	297	6.6	%	$	228	6.4	%	$	594	6.9	%	$	474	6.5	%
Professional fees		53	1.4			36	0.9			167	1.5			114	1.0			56	1.2			54	1.5			105	1.2			114	1.6
Provision for bad debts		4	0.1			7	0.2			40	0.4			26	0.2			7	0.2			22	0.6			17	0.2			36	0.5
Other		85	2.2			89	2.2			263	2.3			277	2.4			85	1.9			73	2.1			187	2.2			178	2.4
	$	416	10.8	%	$	386	9.7	%	$	1,218	10.9	%	$	1,186	10.2	%	$	445	9.9	%	$	377	10.6	%	$	903	10.5	%	$	802	11.0	%

Selling, general and administrative expenses ~~for the three and nine months ended September 30, 2020~~ have increased primarily due to (i) ~~incremental~~higher incentive compensation costs; (ii) increased labor and support costs ~~incurred in connection with the~~related to our acquisition ~~and integration~~ of Advanced Disposal and ~~(ii)~~(iii) strategic investments in ~~technology, including planned investments~~our digital platform. Although our costs increased, the significant revenue increases in ~~a new enterprise resource planning system~~our high-margin businesses, which include our landfill and ~~accelerated investments in customer service digitalization. Additionally,~~commercial and industrial collection businesses, positioned us to reduce our overall selling, general and administrative expenses as a ~~percent~~percentage of ~~revenue have increased in 2020 due to~~revenues when compared with the decline in volume-related revenues. The nine months was also impacted by an increase in the provision for bad debts due to negative impacts on customer receipts experienced due to the COVID-19 pandemic.prior year periods.

We consistently manage our costs, particularly those incurred for discretionary initiatives, to ensure that we are optimizing our customer service, back-office effectiveness and profitability. As a result of the declines in revenue from the COVID-19 pandemic, we specifically focused on reducing costs for advertising, travel and entertainment and professional fees other than those specifically tied to strategic initiatives. The decreases in selling, general and administrative expenses from these proactive steps have been more than offset by the items discussed above.

Significant items affecting the comparison of our selling, general and administrative expenses between ~~the~~ reported periods include:

Labor and Related Benefits — The increase in labor and related benefits costs ~~for the three months ended September 30, 2020, is~~was primarily related to (i) higher ~~long-term~~ incentive compensation ~~costs and annual merit increases. For the nine month comparison, the decrease~~costs; (ii) additional headcount in ~~labor and related benefits costs as compared to the prior year period is largely due to (i) proactive steps undertaken to defer hiring; (ii) reduced~~connection with our acquisition of Advanced Disposal; (iii) increases in health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020; (iv) costs associated with our strategic investments in our digital platform and ~~(iii) lower annual incentive compensation costs. These cost decreases were offset, in part, by~~(v) annual merit ~~increases.~~increases for our employees.

Professional Fees — ~~The increase in professional~~Professional fees ~~was~~increased primarily ~~driven by consulting fees incurred for the acquisition and integration of Advanced Disposal. In addition, we continue~~due to ~~make~~our strategic investments in ~~operating, customer-facing~~our digital platform. For the six months ended June 30, 2021, these increases were partially offset by lower consulting, advisory and ~~back-office technologies, including our customer service digitalization platform, which will connect all~~legal fees following the ~~Company’s functions required to service our customers. We are also investing~~completion of the acquisition of Advanced Disposal in the ~~implementation~~fourth quarter of ~~a new enterprise resource planning system.~~2020.

Provision for Bad Debts — The ~~increase~~decrease in ~~the~~ provision for bad debts ~~during the nine months ended September 30, 2020 is~~was primarily due to ~~increased collection risk associated with certain customers as a result of the COVID-19 pandemic. However, we are encouraged to see~~ an overall improvement in customer account collections ~~during the three months ended September 30, 2020 which resulted in a reduction in the provision for bad debts recognized during the current quarter.~~and decreased collection risk with certain customers.

Other —The ~~decrease~~increase in other expenses ~~for~~was primarily driven by costs associated with the ~~nine~~acquisition of Advanced Disposal and increased digital costs. For the six months ended ~~September~~June 30, 2020, compared to the prior year period, was primarily due to proactive measures taken to reduce discretionary costs company-wide. Litigation costs have also declined in 2020. These cost decreases have been2021, these increases were partially offset by ~~increased technology infrastructure costs~~reductions in 2020, which we expect to continue as we make strategic investments in our digital platform. We also incurred some one-time technology costs in the first half of the year to transition employees to work-from-home in response to the COVID-19 pandemic.telecommunications and travel and entertainment costs.

Depreciation and Amortization Expenses

The following table summarizes the components of our depreciation and amortization expenses (in millions of dollars and as a percentage of revenues):


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,								September 30,								June 30,								June 30,
	2020				2019				2020				2019				2021				2020				2021				2020
Depreciation of tangible property and equipment	$	247	6.4	%	$	225	5.7	%	$	729	6.5	%	$	659	5.7	%	$	279	6.3	%	$	242	6.8	%	$	558	6.5	%	$	482	6.6	%
Amortization of landfill airspace		148	3.8			152	3.8			434	3.9			440	3.8			184	4.1			148	4.1			341	4.0			286	3.9
Amortization of intangible assets		24	0.7			27	0.7			72	0.7			80	0.7			37	0.8			24	0.7			73	0.8			48	0.7
	$	419	10.9	%	$	404	10.2	%	$	1,235	11.1	%	$	1,179	10.2	%	$	500	11.2	%	$	414	11.6	%	$	972	11.3	%	$	816	11.2	%

The increase in depreciation of tangible property and equipment ~~during the three and nine months ended September 30, 2020, compared to the prior year periods,~~ was primarily related to our acquisition of Advanced Disposal and investments in capital assets, including ~~trucks~~our fleet and facilities. The ~~decrease~~increase in amortization of landfill airspace ~~during the three and nine months ended September 30, 2020, compared to the prior year periods,~~ was driven by ~~lower volumes at~~(i) landfill volume increases from the continued economic recovery; (ii) our ~~landfills primarily as a result~~acquisition of ~~the COVID-19 pandemic.~~Advanced Disposal and (iii) changes in landfill estimates. The ~~volume-related decrease~~increase in amortization of ~~landfill airspace for~~intangible assets is primarily driven by the ~~nine months ended September 30, 2020 was partially offset by charges needed~~amortization of acquired intangible assets related to ~~reflect changes in estimated landfill construction costs.~~the acquisition of Advanced Disposal.

~~Restructuring~~

To better support our investment in customer service digitalization discussed above, we modified our field sales and customer services structures, resulting in a $7 million restructuring charge for the three months ended September 30, 2020.

(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we recognized ~~$68~~net charges of $17 million in the first quarter of 2021 consisting of (i) a $19 million charge pertaining to reserves for certain loss contingencies in our Corporate and Other segment and (ii) $6 million of ~~non-cash~~asset impairment charges primarily related to our WM Renewable Energy business within our Other segment. These charges were partially offset by an $8 million gain from divestitures of certain ancillary operations in our Other segment.

During the six months ended June 30, 2020, we recognized non-cash impairment charges of $61 million in the second quarter of 2020 primarily related to the following:

Energy Services Asset Impairments — During the second quarter of 2020, the Company tested the recoverability of certain energy services assets in our Tier 12 segment. Indicators of impairment included (i) the sharp downturn in oil demand that has led to a significant decline in oil prices and production activities, which we project will have long-term impacts on the utilization of our assets and (ii) significant shifts in our business, including increases in competition and customers choosing to bury waste on site versus in a landfill, reducing our revenue outlook. The Company determined that the carrying amount of the asset group was not fully recoverable. As a result, we recognized $41 million of non-cash impairment charges primarily related to two landfills and an oil field waste injection facility in our Tier 12 segment. We wrote down the net book value of these assets to their estimated fair value using an income approach based on estimated future cash flow projections (Level 3). The aggregate fair value of the impaired asset group was $8 million as of June 30, 2020. The Company tested the recoverability of an additional $239 million in energy services assets and determined that the carrying amount was recoverable as of June 30, 2020. No new indicators of impairment were identified during the three months ended September 30, 2020.

Other Impairments — In addition to the energy services impairments noted above, during the second quarter of 2020, we recognized a $20 million non-cash impairment charge in our Tier 3 segment due to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace, which was considered an impairment indicator. As the carrying value was not recoverable, we wrote off the entire net book value of the asset using an income approach based on estimated future cash flow projections (Level 3). The impairment charge was comprised of $12 million related to the carrying value of the asset and $8 million related to the acceleration of the expected timing of capping, closure and post-closure activities. ~~The impairment is discussed further in Note 2 to the Condensed Consolidated Financial Statements.~~

Additionally, during the third quarter of 2020, we recognized a $7 million net charge primarily related to non-cash impairments of certain assets within our WM Renewable Energy business in our Other segment. As the carrying values of the assets were not recoverable, we wrote off their entire net carrying value using an income approach based on estimated future cash flow projections (Level 3).

~~Income from Operations~~

3936

~~Tier 1~~Income from Operations

In the second quarter of 2021, we combined our Eastern and Western Canada Areas reducing the number of Areas we manage from 17 to ~~Tier 2~~16, and ~~the Northern California Area from Tier 3 to Tier 2.~~realigned our Solid Waste tiers. Reclassifications have been made to our prior period condensed consolidated financial information to conform to the current year presentation.

The following table summarizes income from operations for our reportable segments (dollars in millions):


	Three Months Ended										Nine Months Ended										Three Months Ended										Six Months Ended
	September 30,						Period-to-Period				September 30,						Period-to-Period				June 30,						Period-to-Period				June 30,						Period-to-Period
	2020			2019(c)			Change				2020			2019(c)			Change				2021			2020			Change				2021			2020			Change
Solid Waste:
Tier 1	$	430		$	436		$	(6)	(1.4)	%	$	1,139		$	1,268		$	(129)	(10.2)	%	$	350		$	270		$	80	29.6	%	$	657		$	558		$	99	17.7	%
Tier 2		226			226			—	—			596			656			(60)	(9.1)			331			208			123	59.1			622			477			145	30.4
Tier 3		290			298			(8)	(2.7)			776			850			(74)	(8.7)			375			244			131	53.7			695			532			163	30.6
Solid Waste		946			960			(14)	(1.5)			2,511			2,774			(263)	(9.5)			1,056			722			334	46.3			1,974			1,567			407	26.0
Other (a)		(7)			(25)			18	(72.0)			(42)			(92)			50	(54.3)			4			(10)			14	*			22			(35)			57	*
Corporate and Other (b)		(259)			(201)			(58)	28.9			(689)			(631)			(58)	9.2			(269)			(185)			(84)	45.4			(555)			(432)			(123)	28.5
Total	$	680		$	734		$	(54)	(7.4)	%	$	1,780		$	2,051		$	(271)	(13.2)	%	$	791		$	527		$	264	50.1	%	$	1,441		$	1,100		$	341	31.0	%
Percentage of revenues		17.6	%		18.5	%						16.0	%		17.7	%						17.7	%		14.8	%						16.8	%		15.1	%

*Percentage change does not provide a meaningful comparison.

(a)

“Other” includes (i) our WMSBS business; (ii) ~~those~~ elements of our landfill gas-to-energy operations ~~and third-party subcontract and administration revenues~~ managed by our ~~EES and~~ WM Renewable Energy ~~businesses that are~~business and not included in the operations of our reportable segments; (iii) elements of our third-party subcontract and administration revenues managed by our EES business and not included in the operations of our reportable segments; (iv) our recycling brokerage services and ~~(iv)~~(v) certain other expanded service offerings and solutions. In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

(b)

“Corporate and Other” operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments. These support services include, among other things, treasury, legal, ~~information technology,~~digital, tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills. Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive ~~program and any administrative expenses or revisions to our estimated obligations associated with divested operations.~~

~~(c)~~

In 2020, we revised allocations between our segments including (i) the discontinuation of certain allocations from Corporate and Other to Solid Waste and (ii) allocating certain insurance costs from Other to Solid Waste. Reclassifications have been made to our prior period information for comparability purposes.program.

The significant items affecting income from operations for our segments during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, as compared with the prior year periods, are summarized below:

●

Solid Waste — Income from operations ~~for the three and nine months ended September 30, 2020 decreased on a year-over-year basis for all Tiers~~in our Solid Waste business increased significantly primarily due to (i) revenue growth in our collection and disposal businesses driven by both volume and yield; (ii) improved profitability in our recycling business from higher market prices for recycling commodities, volume recovery from facilities where we temporarily suspended operations during the ~~overall negative impact of the COVID-19~~ pandemic ~~resulting~~and improved costs at facilities where we have made investments in ~~revenue declines from lower volumes. Volume declines have moderated~~enhanced technology and equipment; (iii) a decrease in the ~~third quarter when compared with~~provision for bad debts and (iv) the ~~more acute impacts we experienced in~~continuation of our proactive cost management efforts as volumes increased. These increases were partially offset by (i) higher incentive compensation costs; (ii) inflationary cost pressures and (iii) increased overtime driven by increased volumes and driver shortages. Additionally, the prior year periods were impacted by non-cash impairment charges, as further discussed below. The positive earnings contributions of Advanced Disposal were offset by elevated depreciation and amortization of acquired assets.

During the second quarter of 2020. This improvement, combined with resumed fees and price increases and proactive cost management, drove significant improvement in the year-over-year comparison during the current quarter. Additionally, income from operations for our segments for the nine months ended September 30, 2020 was impacted by an increase in provisions for bad debts.

~~Additionally, during the nine months ended September 30,~~ 2020, income from operations ~~for our Tier 1 segment~~ was impacted by $61 million of non-cash impairments consisting of (i) $41 million of non-cash asset impairment charges in our Tier 2 segment primarily related to two landfills and an oil field waste injection ~~facility. In 2019, our Tier 2 segment income from operations benefited from natural disaster clean-up efforts. For the three~~facility and ~~nine months ended September 30, 2020, natural disaster related events were inconsequential to our results. Income from operations for our Tier 3 segment was impacted by~~(ii) a $20 million non-cash impairment charge in our Tier 3 segment related to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace.

●

Other — ~~Income~~The increase in income from operations ~~for the Other segment for the three and nine months ended September 30, 2020~~ was ~~impacted~~ primarily driven by (i) ~~an increase in revenue~~increased market values for renewable energy credits generated by our WM Renewable Energy business; (ii) increased revenues for our WMSBS business as a result of new ~~contract~~

~~activities; (ii) an~~contracts, improved pricing and increased customer activity and (iii) higher market prices for commodities benefiting our recycling brokerage services. The increase in ~~revenue in our WM Renewable Energy business~~income from operations for the six months ended June 30, 2021, as compared with the prior year period, was also due to a ~~result~~gain from the divestitures of ~~a new renewable energy facility coming online which drove an increase in commodity sales and (iii) lower risk management costs.~~certain ancillary operations during the first quarter of 2021.

●

Corporate and Other — The ~~decline~~increase in ~~income from operations for the three and nine months ended September 30, 2020~~these costs was ~~primarily~~ driven by (i) higher incentive compensation costs; (ii) strategic investments in our digital platform; (iii) increased ~~expenses as a result of (i) preparation for~~health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020 and (iv) increased labor and support costs from our acquisition of Advanced ~~Disposal; (ii) investments we are making~~Disposal. The six months ended June 30, 2021, as compared with the prior year period, was further impacted by a charge pertaining to reserves for certain loss contingencies during the first quarter of 2021, as well as changes in ~~technology; (iii) higher long-term incentive compensation costs; (iv) incremental costs associated with COVID-19 pandemic and (v) charges related to~~ the ~~restructuring~~measurement of our ~~customer service~~environmental remediation obligations and ~~sales functions. These increased expenses were offset,~~recovery assets in ~~part, by lower health~~both the first quarter of 2020 and ~~welfare costs and lower annual incentive compensation.~~2021.

Interest Expense, Net

Our interest expense, net was ~~$97~~$98 million and ~~$328~~$195 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to ~~$105~~$119 million and ~~$301~~$231 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. The ~~increase for~~decreases are primarily due to certain refinancing activities, including (i) the ~~nine months was primarily attributable to our May 2019 issuance~~redemption of ~~$4.0 billion of senior notes, a portion of which was intended to be used to fund our planned acquisition of Advanced Disposal. We redeemed~~ $3.0 billion of ~~these~~ senior notes in July 2020 ~~resulting in a reduction in our interest expense for~~and the ~~three months ended September 30, 2020. The July 2020 redemption~~issuance of ~~$3.0~~$2.5 billion of ~~these~~ senior notes isin November 2020 at lower rates and (ii) the retirement of $1.3 billion of certain high-coupon senior notes and issuance of $950 million of lower coupon senior notes in May 2021, as discussed further below. The decreases were partially offset by decreases in ~~Loss on Early Extinguishment~~interest income as a result of ~~Debt~~ ~~below.~~lower cash and cash equivalents balances in 2021.

Loss on Early Extinguishment of Debt

In May ~~2019,~~2021, WM issued ~~$4.0 billion~~$950 million of senior notes, ~~including $3.0 billion~~which are discussed further below in Summary of Cash and Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations. Concurrently, we used the net proceeds from the newly issued senior notes ~~with a special mandatory redemption feature (the “SMR Notes”). We used $344~~of $942 million ~~of the proceeds from this offering~~and available cash on hand, to retire ~~$257 million principal amount~~$1.3 billion of certain high-coupon senior notes. The ~~cash paid to retire the high-coupon senior notes also included $84 million of related premiums, which are classified as~~ loss on early extinguishment of debt ~~in our Condensed Consolidated Statement of Operations,~~for the three and $3six months ended June 30, 2021 includes $220 million of ~~accrued interest.~~

~~In July 2020, we recognized a $52 million loss on early extinguishment of debt in our Consolidated Statement of Operations~~charges related to ~~the mandatory redemption~~these tender offer, including cash paid of ~~the SMR Notes. The loss includes $30~~$211 million ofrelated to premiums ~~paid~~ and ~~$22~~other third-party costs, and $9 million ofprimarily related to unamortized discounts and debt issuance costs. ~~Pursuant~~Refer to Note 3 to the ~~terms of the SMR Notes, we were required~~Condensed Consolidated Financial Statements for additional information related to redeem all of such outstanding notes paying debt holders 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest, as a result of the Advanced Disposal acquisition not being completed by July 14, 2020. Accordingly, the redemption was completed on July 20, 2020 using available cash on hand and, to a lesser extent, commercial paper borrowings. The cash paid included the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest.these transactions.

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of ~~$16~~$11 million and ~~$56~~$20 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to $14 million and ~~$39~~$40 million for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. The losses for each period ~~are~~were primarily related to our noncontrolling interests in entities established to invest in and manage low-income housing properties. We generate tax benefits, including tax credits, from the losses incurred from these investments. ~~Additionally, the 2019 periods include losses associated with our investment in a refined coal facility.~~ During the ~~first quarter of~~three months ended March 31, 2020, the entity that ~~holds~~held and ~~manages~~managed our ownership interest in ~~the~~a refined coal facility sold a majority of its assets resulting in a $7 million non-cash impairment charge at that time. Refer to Note 4 to the Condensed Consolidated Financial Statements.

Other, Net

During the ~~first~~second quarter of ~~2019,~~2021, we recognized an $8 million loss upon settlement of a ~~$52 million non-cash impairment charge related to our minority-owned investment~~reverse Treasury rate lock associated with the refinancing of certain senior notes as discussed above in ~~a waste conversion technology business. We wrote down our investment to its estimated fair value as the result~~Loss on Early Extinguishment of ~~recent third-party investor’s transactions in these securities. The fair value of our investment was not readily~~Debt.

4138

determinable; thus, we determined the fair value utilizing a combination of quoted price inputs for the equity in our investment (Level 2) and certain management assumptions pertaining to investment value (Level 3).

Income Tax Expense

Our income tax expense was ~~$126~~$105 million and ~~$288~~$229 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to ~~$120~~$88 million and ~~$350~~$162 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. Our effective income tax rate was ~~24.5%~~22.9% and ~~21.4%~~22.8% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to ~~19.4%~~22.2% and ~~22.2%~~19.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

The ~~increases~~increase in our income tax expense and effective income tax rate when comparing the three and six months ended ~~September~~June 30, ~~2020~~2021 with the prior year period was due to (i) an increase in pre-tax income in 2021; (ii) a decrease in the benefits realized on tax audit settlements and ~~2019 were driven~~(iii) lower federal tax credits. The increase in our income tax expense and effective tax rate for the six months ended June 30, 2021 as compared with the prior year period was also impacted by (i) a decrease in excess tax benefits associated with equity-based compensation and (ii) favorable adjustments to accruals and related deferred taxes recorded in ~~2019 due~~2020.

See Note 4 to the ~~filing of our 2018 income tax returns and changes in state and foreign laws; (ii) lower federal tax credits in 2020 and (iii) the detrimental impact of non-deductible transaction costs~~Condensed Consolidated Financial Statements for more information related to ~~closing the acquisition of Advanced Disposal. The decreases in our~~ income tax expense and effective income tax rate when comparing the nine months ended September 30, 2020 and 2019 were driven primarily by (i) a decrease in pre-tax income in 2020, which increased the effective tax rate impact of federal tax credits and (ii) a $52 million non-cash impairment charge recognized in 2019 that was not deductible for tax purposes.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, none of which directly affected our income tax expense for the three and nine months ended September 30, 2020 or are expected to have a material impact on our income tax expense in future reporting periods. The Company is evaluating the impact of the CARES Act and expects to benefit from the deferral of certain payroll taxes through the end of calendar year 2020.taxes.

Liquidity and Capital Resources

The Company consistently generates cash flow from operations that meets and exceeds our working capital needs, payment of our dividends and investment in the business through capital expenditures and tuck-in acquisitions. We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business requirements that may arise during the year. Additionally, the Company continually takes actions to manage costs and capital spending without compromising long-term strategic priorities. Recent actions include route optimization initiatives, reducing overtime hours, limiting hiring and optimizing our workforce through improved retention and reduced turnover, reducing non-essential selling, general and administrative expenses and lowering capital expenditures to a level that is consistent with volume changes driven by COVID-19. Furthermore, as a result of the CARES Act discussed above in ~~Income Tax Expense~~~~, we are currently benefiting from the deferral of certain payroll taxes, which will continue through the end of calendar year 2020, favorably impacting our net cash provided by operating activities.~~ The Company believes that its investment grade credit ratings, large value of unencumbered assets and modest leverage enable it to obtain adequate financing to meet its ongoing capital, operating, strategic and other liquidity requirements.

Summary of Cash and Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations

The following is a summary of our cash and cash equivalents, restricted trust and escrow accounts and debt balances (in millions):


		September 30,		December 31,		June 30,		December 31,
	��	2020		2019		2021		2020
Cash and cash equivalents		$	703	$	3,561	$	148	$	553
Restricted trust and escrow accounts:
Insurance reserves		$	324	$	270	$	384	$	306
Final capping, closure, post-closure and environmental remediation funds			112		109		117		114
Tax-exempt bond funds							20		—
Other			3		4		—		2
Total restricted trust and escrow accounts (a)		$	439	$	383	$	521	$	422
Debt:
Current portion		$	167	$	218	$	361	$	551
Long-term portion			10,255		13,280		12,883		13,259
Total debt		$	10,422	$	13,498	$	13,244	$	13,810

(a)	~~Includes $70 million as~~As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020, $75 million of these account balances was included in other current assets in our Condensed Consolidated Balance Sheets.

As of ~~September~~June 30, ~~2020,~~2021 we had ~~$2.2~~$2.9 billion of debt maturing within the next 12 months, including (i) ~~$600 million~~$1.5 billion of short-term borrowings under our commercial paper program; (ii) ~~$400 million of 4.60% senior notes that mature in March 2021; (iii) $952 million~~$1.2 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities and ~~(iv) $167~~(iii) $212 million of other debt with scheduled maturities within the next 12 months, including ~~$63~~$103 million of tax-exempt bonds. As of ~~September~~June 30, ~~2020,~~2021, we have classified ~~$2.0~~$2.6 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity

under our $3.5 billion long-term U.S. and Canadian revolving credit facility (“$3.5 billion revolving credit facility”). The remaining ~~$167~~$361 million of debt maturing in the next 12 months is classified as current obligations.

In May 2021, WM issued $950 million of senior notes consisting of $475 million of 2.00% senior notes due June 1, 2029 and $475 million of 2.95% senior notes due June 15, 2041. The net proceeds from these debt issuances were $942 million, all of which were used along with available cash on hand, to retire $1.3 billion of certain high-coupon senior notes. The cash paid includes the principal amount of the debt retired, $211 million of related premiums and other third-party costs, which are classified as loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations, and $15 million of accrued interest.

Guarantor Financial Information

WM Holdings has fully and unconditionally guaranteed all of WM’s senior indebtedness. WM has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WM’s other subsidiaries have guaranteed any of WM’s or WM Holdings’ debt. In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WM and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WM and WM Holdings on a combined basis after elimination of intercompany transactions between WM and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):


	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Balance Sheet Information:
Current assets	$	636	$	3,491	$	5	$	481
Noncurrent assets		17		16		14		14
Current liabilities		117		127		249		446
Noncurrent liabilities:
Advances due to affiliates		19,795		19,345		17,782		16,505
Other noncurrent liabilities		8,142		10,988		10,837		11,202


	~~Nine~~Six Months Ended
	~~September~~June 30, ~~2020~~2021
Income Statement Information:
Revenue	$	—
Operating income		—
Net loss		~~191~~295

Summary of Cash Flow Activity

The following is a summary of our cash flows for the ~~nine~~six months ended ~~September~~June 30 (in millions):


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2020		2019		2021		2020
Net cash provided by operating activities	$	2,650	$	2,852	$	2,163	$	1,621
Net cash used in investing activities	$	(1,241)	$	(2,096)	$	(708)	$	(918)
Net cash (used in) provided by financing activities	$	(4,244)	$	2,080
Net cash used in financing activities					$	(1,810)	$	(1,575)

Net Cash Provided by Operating Activities — Our operating cash flows ~~decreased~~increased by $542 million as compared with the prior year period, ~~largely~~ as a result of (i) an increase in ~~interest payments in the current year period~~earnings primarily ~~associated with~~attributable to our ~~May 2019 issuance~~collection, disposal and recycling lines of ~~$4.0 billion of senior notes;~~business; (ii) ~~higher bonus payments in the current year period; (iii) other net unfavorable~~favorable changes in our ~~operating assets and liabilities,~~working capital, net of effects of acquisitions and divestitures; (iii) the acquisition of Advanced Disposal and (iv) ~~a decline in operating income, primarily~~lower annual incentive compensation payments in the ~~second quarter~~current year. Our working capital was favorably impacted by the timing of ~~2020, due to COVID-19~~cash payments for our capital expenditures and ~~(v) increases~~an improvement in ~~selling, general and administrative costs, particularly to support the Advanced Disposal acquisition and technology investments.~~our days sales outstanding. These ~~results~~favorable impacts were partially offset by (i) higher income tax payments in the current year

period; (ii) the timing of cash ~~benefit~~tax benefits received in 2020 associated with ~~deferring certain~~federal alternative fuel tax credits and (iii) timing differences in the payment of payroll taxes due to a temporary deferral taken in 2020 as provided for by the ~~CARES Act, which is discussed in~~ ~~Income Tax Expense~~~~; (ii) lower income taxes paid due to a decrease in pre-tax income~~Coronavirus Aid, Relief and ~~timing of estimated tax payments and (iii) benefits from alternative fuel tax credits.~~Economic Security Act.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are summarized below:

●

~~Acquisitions~~ — We spent $3 million and $513 million for acquisitions during the nine months ended September 30, 2020 and 2019, respectively, related to our Solid Waste business. These amounts exclude cash used in financing and operating activities related to the timing of contingent consideration paid. Our acquisition spending in 2019 relates primarily to our acquisition of Petro Waste Environmental LP, which is discussed further in Note 8 to the Condensed Consolidated Financial Statements.

●

Capital Expenditures — We used ~~$1,238~~$666 million and ~~$1,532~~$895 million for capital expenditures during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. The decrease in capital spending was primarily driven by timing differences in our fleet purchases as well as supply chain constraints in advancing current year projects. The Company continues to maintain a disciplined focus on capital management to prioritize investments in the long-term growth of our business and for the replacement of aging ~~assets; however, we are currently taking proactive steps to reduce the amount of capital spending required due to the decrease in volumes as a result of COVID-19.~~assets.

●

Other, Net — The year-over-year changes in other investing activities were primarily driven by ~~capital contributions to certain of our investments in unconsolidated entities and~~ changes in our investment portfolio associated with a wholly-owned insurance captive. During the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we used ~~$19~~$56 million and ~~$47~~$33 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities. We also used $20 million in the third quarter of 2019 to make an initial cash payment associated with a low-income housing investment. Additionally, during the first quarter of 2019, we had $17 million of cash proceeds from the redemption of our preferred stock received in conjunction with the 2014 sale of our Puerto Rico operations.

Net Cash ~~(Used in) Provided by~~Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 are summarized below:

●

Debt (Repayments) Borrowings — The following summarizes our cash borrowings and repayments of debt ~~(excluding our commercial paper program discussed below)~~ for the ~~nine~~six months ended ~~September~~June 30 (in millions):


	2020		2019		2021		2020
Borrowings:
Revolving credit facility (a)	$	50	$	—
Commercial paper (a)					$	640	$	—
Senior notes		—		3,971		942		—
Canadian senior notes		—		373
Tax-exempt bonds		181		214		125		—
Other debt		—		—		—		—
	$	231	$	4,558	$	1,707	$	—
Repayments:
Revolving credit facility (a)	$	(50)	$	(11)
Commercial paper (a)					$	(954)	$	—
Senior notes		(3,600)		(257)		(1,289)		(600)
Tax-exempt bonds		(212)		(193)		(24)		(52)
Other debt		(80)		(41)		(59)		(53)
	$	(3,942)	$	(502)	$	(2,326)	$	(705)
Net cash (repayments) borrowings	$	(3,711)	$	4,056
Net cash repayments					$	(619)	$	(705)

(a)

~~Our revolving credit facility was amended and restated~~Beginning in ~~November 2019 increasing~~ the ~~total capacity to $3.5 billion.~~second quarter of 2021 we reported these cash flows on a gross basis.

~~In May 2019, we issued $4.0 billion of senior notes to position us to fund our acquisition of Advanced Disposal.~~ Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to debt borrowings and ~~repayments, including the July 2020 redemption of $3.0 billion of SMR Notes.~~repayments.

●

Premiums and Other Paid on Early Extinguishment of Debt — During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we paid premiums and other third-party costs of $30 million to redeem $3.0 billion of SMR Notes as discussed further in Note 3 to the Condensed Consolidated Financial Statements. During the nine months ended September 30, 2019, we paid premiums of $84$211 million to retire certain high-coupon senior notes. See ~~Loss on Early Extinguishment of Debt~~Note 3 to the Condensed Consolidated Financial Statements for further ~~discussion.~~

●

~~Commercial Paper Program —~~ ~~During the three months ended September 30, 2020, we had net cash borrowings~~discussion of $597 million under our commercial paper program. Borrowings incurred in 2020 were primarily to fund a portion of the redemption of SMR Notes and for general corporate purposes. During the nine months ended September 30, 2019, we made net cash repayments of $1,001 million under our commercial paper program. Borrowings incurred in 2019 were primarily to support acquisitions and for general corporate purposes. We repaid the outstanding balance in the second quarter of 2019 with proceeds from the May 2019 issuance of senior notes discussed above.this debt transaction.

●

Common Stock Repurchase Program — During the ~~three~~six months ended ~~March 31,~~June 30, 2021, we repurchased $500 million of our common stock pursuant to two accelerated share repurchase (“ASR”) agreements, as discussed further in Note 11 to the Condensed Consolidated Financial Statements. We expect to repurchase the full amount of our remaining authorization of $850 million of common stock during the second half of 2021. During the six months ended June 30, 2020, we repurchased $402 million of our common stock, which ~~includes~~included $313 million related to a February 2020 ~~accelerated share repurchase~~ASR agreement and $89 million in open market transactions. In the first quarter of 2020, due to uncertainty associated with COVID-19 as well as our incremental funding needs for the Advanced Disposal acquisition, we elected to temporarily suspend additional share repurchases for the foreseeable future. No common stock was repurchased during the second and third quarters of 2020. During the nine months ended September 30, 2019, we repurchased $244 million of our common stock, which includes $180 million related to the May 2019 accelerated share repurchase agreement and $64 million in open market transactions. We also paid $4 million related to share repurchases executed in December 2018.

●

Cash Dividends — For the periods presented, all dividends have been declared by our Board of Directors.

We paid cash dividends of ~~$696~~$489 million and ~~$658~~$466 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The increase in dividend payments is primarily due to our quarterly per share dividend increasing from ~~$0.5125 in 2019 to~~ $0.545 in 2020 to $0.575 in 2021 which was offset, in part, by a reduction in ~~the number of shares of~~ our common stock outstanding as a result of our common stock repurchase program.

Free Cash Flow

We are presenting free cash flow, which is a non-GAAP measure of liquidity, in our disclosures because we use this measure in the evaluation and management of our business. We define free cash flow as net cash provided by operating activities, less capital expenditures, plus proceeds from divestitures of businesses and other assets, ~~(net~~net of cash ~~divested).~~divested. We believe it is indicative of our ability to pay our quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay our debt obligations. Free cash flow is not intended to replace net cash provided by operating activities, which is the most comparable GAAP measure. We believe free cash flow gives investors useful insight into how we view our liquidity, but the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.

Our calculation of free cash flow and reconciliation to net cash provided by operating activities is shown in the table below (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net cash provided by operating activities	$	1,029	$	952	$	2,650	$	2,852	$	1,043	$	856	$	2,163	$	1,621
Capital expenditures		(343)		(483)		(1,238)		(1,532)		(396)		(436)		(666)		(895)
Proceeds from divestitures of businesses and other assets (net of cash divested)		5		9		20		29
Proceeds from divestitures of businesses and other assets, net of cash divested										2		3		17		15
Free cash flow	$	691	$	478	$	1,432	$	1,349	$	649	$	423	$	1,514	$	741

~~Acquisition and Assets Held-for-Sale~~

On April 14, 2019, we entered into an Agreement and Plan of Merger to acquire all outstanding shares of Advanced Disposal for $33.15 per share in cash, representing a total enterprise value at the time of $4.9 billion when including approximately $1.9 billion of Advanced Disposal’s net debt. On June 24, 2020, we entered into an amendment to the Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which a subsidiary of WM would acquire all outstanding shares of Advanced Disposal for $30.30 per share in cash, representing a total enterprise value of $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt. This acquisition grows our footprint and allows us to provide differentiated, sustainable waste management and recycling services to approximately three million new commercial, industrial and residential customers, primarily located in 16 states in the Eastern half of the U.S. The transaction closed on October 30, 2020 and is discussed further below in ~~Subsequent Events~~.

On June 24, 2020, we also announced that we and Advanced Disposal entered into an agreement that provided for GFL Environmental Inc. to acquire a combination of assets from us and Advanced Disposal to address divestitures required by the U.S. Department of Justice in connection with the Advanced Disposal acquisition (as subsequently amended, the “Divestiture Agreement”). Immediately following the Merger Agreement closing on October 30, 2020, the transactions contemplated by the Divestiture Agreement were consummated and the Company received cash proceeds from the sale of $856.4 million, subject to certain post-closing adjustments. These transactions are discussed further below in ~~Subsequent Events~~.

As of September 30, 2020, the WM assets to be divested met the criteria to be classified as held-for-sale and have been classified as such within other current assets and accrued liabilities, as appropriate, in our Condensed Consolidated Balance Sheet. The carrying amounts of the assets and liabilities that have been classified as held-for-sale, which are primarily in our Tier 2 and Tier 3 segments, are $53 million of property and equipment and goodwill and $17 million of landfill liabilities.

~~Subsequent Events~~

On October 30, 2020, we closed our acquisition of Advanced Disposal, which is discussed further in Note 8 to the Condensed Consolidated Financial Statements. We are currently in the process of valuing the assets acquired and liabilities assumed in the business combination. As a result, we are not yet able to provide the amounts to be recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed and other related disclosures. We will disclose this and other related information in our Form 10-K for the year ended December 31, 2020. Total enterprise value of the acquisition was $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt and is subject to post-closing adjustments. The acquisition was funded using our $3.0 billion revolving credit facility and commercial paper borrowings. Refer to Note 3 to the Condensed Consolidated Financial Statements for further discussion of our $3.0 billion revolving credit facility and commercial paper program.

Critical Accounting Estimates and Assumptions

In preparing our financial statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with precision from available data or simply cannot be calculated. In some cases, these estimates are difficult to determine and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, long-lived asset impairments, the fair value of assets and liabilities acquired in business combinations or as asset acquisitions and reserves associated with our insured and self-insured claims, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Off-Balance Sheet Arrangements

We have financial interests in unconsolidated variable interest entities as discussed in Note 13 to the Condensed Consolidated Financial Statements. Additionally, we are party to guarantee arrangements with unconsolidated entities as discussed in the Guarantees section of Note 6 to the Condensed Consolidated Financial Statements. These arrangements have not materially affected our financial position, results of operations or liquidity during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

Seasonal Trends

Our operating revenues tend to be somewhat higher in summer months, primarily due to ~~the~~ higher construction and demolition waste volumes. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months. Our second and third quarter revenues and results of operations typically reflect these seasonal trends.

Inflation

While inflationary increases in costs can affect our income from operations margins, we believe that inflation generally has not had, and in the near future is not expected to have, any material adverse effect on our results of operations. However, a portion of our collection revenues are generated under long-term agreements with price adjustments based on various indices intended to measure inflation. Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Except for the broad effects of the COVID-19 pandemic, including widespread business disruptions, theinformation~~Information about market risks as of ~~September~~June 30, ~~2020~~2021 does not differ materially from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Item 4. Controls and Procedures.

Effectiveness of Controls and Procedures

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of ~~September~~June 30, ~~2020~~2021 (the end of the period covered by this Quarterly Report on Form 10-Q).

Changes in Internal Control over Financial Reporting

Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2020.~~2021. We determined that there were no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

Item 1. Legal Proceedings.

Information regarding our legal proceedings can be found under the Environmental Matters and Litigation sections of Note 6 to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019, as updated by Part II,~~ 2020.

Item 1A2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table summarizes common stock repurchases made during the second quarter of 2021 (shares in millions):

Issuer Purchases of Equity Securities


				Total Number of
	Total			Shares Purchased as	Approximate Maximum
	Number of	Average		Part of Publicly	Dollar Value of Shares that
	Shares	Price Paid		Announced Plans or	May Yet be Purchased Under
Period	Purchased	per Share(a)		Programs	the Plans or Programs
April 1 — 30	—	$	—	—	$	1.1 billion
May 1 — 31	1.6	$	139.60	1.6	$	850 million
June 1 — 30	—	$	—	—	$	850 million
Total	1.6	$	139.60	1.6

(a)

The “Average Price Paid per Share” in the table represents the final weighted average price per share paid for the accelerated share repurchase (“ASR”) agreement executed in February 2021 and the initial weighted average price per share paid for the ASR agreement executed in May 2021 which remained open as of June 30, 2021.

In February 2021, we entered into an ASR agreement to repurchase $250 million of our ~~Quarterly Reports~~common stock. At the beginning of the repurchase period, we delivered $250 million cash and received 1.8 million shares based on ~~Form 10-Q for~~a stock price of $110.56. The ASR agreement completed in the ~~quarters ended March 31, 2020~~second quarter of 2021, at which time we received 0.2 million additional shares based on a final weighted average price of $126.83.

In May 2021, we entered into an ASR agreement to repurchase $250 million of our common stock. At the beginning of the repurchase period, we delivered $250 million cash and received 1.4 million shares based on a stock price of $141.42. The final number of shares to be repurchased and the final average price per share under the ASR agreement will depend on the volume-weighted average price of our stock, less a discount, during the term of the agreement. Purchases under the ASR agreement are expected to be completed in July 2021.

As of June 30, ~~2020.~~2021, the Company has authorization for $850 million of future share repurchases. We expect to repurchase the full amount of our remaining authorization during the second half of 2021. Any future share repurchases pursuant to this authorization of our Board of Directors will be made at the discretion of management and will depend on factors similar to those considered by the Board of Directors in making dividend declarations, including our net earnings, financial condition and cash required for future business plans, growth and acquisitions.

Item 4. Mine Safety Disclosures.

Information concerning mine safety and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this quarterly report.

Item 6. Exhibits.


Exhibit No.		Description
~~10.1~~4.1*		~~$3.0 Billion Credit~~Officers’ Certificate delivered pursuant to Section 301 of the Indenture dated September 10, 1997 establishing the terms and form of the 2.00% Senior Notes due 2029.

4.2*		Officers’ Certificate delivered pursuant to Section 301 of the Indenture dated September 10, 1997 establishing the terms and form of the 2.95% Senior Notes due 2041.

4.3*		Guarantee Agreement ~~dated July 28, 2020~~ by ~~and among Waste Management, Inc., Waste Management~~WM Holdings ~~Inc., certain banks party thereto, and Mizuho~~in favor of The Bank ~~Ltd.~~of New York Mellon Trust Company, N.A., as ~~administrative agent [incorporated~~Trustee for the holders of the 2.00% Senior Notes due 2029.

4.4*		Guarantee Agreement by ~~reference to Exhibit 10.1 to Form 8-K filed July 30, 2020].~~WM Holdings in favor of The Bank of New York Mellon Trust Company, N.A., as Trustee for the holders of the 2.95% Senior Notes due 2041.

22.1*		Guarantor Subsidiary.

31.1*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, of James C. Fish, Jr., President and Chief Executive Officer.

31.2*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, of Devina A. Rankin, Executive Vice President and Chief Financial Officer.

32.1**		Certification Pursuant to 18 U.S.C. §1350 of James C. Fish, Jr., President and Chief Executive Officer.

32.2**		Certification Pursuant to 18 U.S.C. §1350 of Devina A. Rankin, Executive Vice President and Chief Financial Officer.

95*		Mine Safety Disclosures.

101.INS*		Inline XBRL Instance.

101.SCH*		Inline XBRL Taxonomy Extension Schema.

101.CAL*		Inline XBRL Taxonomy Extension Calculation.

101.LAB*		Inline XBRL Taxonomy Extension Labels.

101.PRE*		Inline XBRL Taxonomy Extension Presentation.

101.DEF*		Inline XBRL Taxonomy Extension Definition.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

4945

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WASTE MANAGEMENT, INC.

	By:	/s/ DEVINA A. RANKIN
		Devina A. Rankin
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

	WASTE MANAGEMENT, INC.

	By:	/s/ LESLIE K. NAGY
		Leslie K. Nagy
		Vice President and
		Chief Accounting Officer
		(Principal Accounting Officer)



Date: ~~November 2, 2020~~July 27, 2021

5046


	2020		2019
Balance as of January 1,	$	28	$	29
Adoption of new accounting standard		(1)		—
Additions charged to expense		40		27
Accounts written-off, net of recoveries		(29)		(31)
Acquisitions, divestitures and other, net		(4)		2
Balance as of September 30,	$	34	$	27