UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the Quarterly Period Ended June 30, |
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or | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
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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.) |
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 |
| Trading Symbol |
| Name of |
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 July 22, 20212022 was 421,098,975413,335,715 (excluding treasury shares of 209,183,486)216,946,746).
PART I.
Item 1. Financial Statements.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Par Value Amounts)
| | | | | | | | | | | | |
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
| | (Unaudited) | | | | | (Unaudited) | | | | ||
ASSETS | | | | | | | | | | | | |
Current assets: |
| | |
| |
|
| | |
| |
|
Cash and cash equivalents | | $ | 148 | | $ | 553 | | $ | 894 | | $ | 118 |
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 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $26 and $25, respectively | |
| 2,494 | |
| 2,278 | ||||||
Other receivables, net of allowance for doubtful accounts of $7 and $8, respectively | |
| 171 | |
| 268 | ||||||
Parts and supplies | |
| 126 | |
| 124 | |
| 159 | |
| 135 |
Other assets | |
| 307 | |
| 239 | |
| 269 | |
| 270 |
Total current assets | |
| 3,226 | |
| 3,540 | |
| 3,987 | |
| 3,069 |
Property and equipment, net of accumulated depreciation and amortization of $19,995 and $19,337, respectively | |
| 14,110 | |
| 14,148 | ||||||
Property and equipment, net of accumulated depreciation and amortization of $21,127 and $20,537, respectively | |
| 14,382 | |
| 14,419 | ||||||
Goodwill | |
| 8,992 | |
| 8,994 | |
| 9,022 | |
| 9,028 |
Other intangible assets, net | |
| 956 | |
| 1,024 | |
| 834 | |
| 898 |
Restricted trust and escrow accounts | |
| 446 | |
| 347 | ||||||
Restricted funds | |
| 397 | |
| 348 | ||||||
Investments in unconsolidated entities | |
| 417 | |
| 426 | |
| 607 | |
| 432 |
Other assets | |
| 890 | |
| 866 | |
| 899 | |
| 903 |
Total assets | | $ | 29,037 | | $ | 29,345 | | $ | 30,128 | | $ | 29,097 |
LIABILITIES AND EQUITY | | | | | | | | | | | | |
Current liabilities: | |
|
| |
|
| |
|
| |
|
|
Accounts payable | | $ | 1,393 | | $ | 1,121 | | $ | 1,382 | | $ | 1,375 |
Accrued liabilities | |
| 1,372 | |
| 1,342 | |
| 1,493 | |
| 1,428 |
Deferred revenues | |
| 557 | |
| 539 | |
| 616 | |
| 571 |
Current portion of long-term debt | |
| 361 | |
| 551 | |
| 231 | |
| 708 |
Total current liabilities | |
| 3,683 | |
| 3,553 | |
| 3,722 | |
| 4,082 |
Long-term debt, less current portion | |
| 12,883 | |
| 13,259 | |
| 14,046 | |
| 12,697 |
Deferred income taxes | |
| 1,744 | |
| 1,806 | |
| 1,632 | |
| 1,694 |
Landfill and environmental remediation liabilities | |
| 2,299 | |
| 2,222 | |
| 2,426 | |
| 2,373 |
Other liabilities | |
| 1,074 | |
| 1,051 | |
| 1,110 | |
| 1,125 |
Total liabilities | |
| 21,683 | |
| 21,891 | |
| 22,936 | |
| 21,971 |
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 | |
| 5,129 | |
| 5,257 | |
| 5,169 |
Retained earnings | |
| 11,444 | |
| 11,159 | |
| 12,563 | |
| 12,004 |
Accumulated other comprehensive income (loss) | |
| 70 | |
| 39 | |
| (17) | |
| 17 |
Treasury stock at cost, 209,467,208 and 207,480,827 shares, respectively | |
| (9,272) | |
| (8,881) | ||||||
Treasury stock at cost, 217,005,817 and 214,158,636 shares, respectively | |
| (10,619) | |
| (10,072) | ||||||
Total Waste Management, Inc. stockholders’ equity | |
| 7,352 | |
| 7,452 | |
| 7,190 | |
| 7,124 |
Noncontrolling interests | |
| 2 | |
| 2 | |
| 2 | |
| 2 |
Total equity | |
| 7,354 | |
| 7,454 | |
| 7,192 | |
| 7,126 |
Total liabilities and equity | | $ | 29,037 | | $ | 29,345 | | $ | 30,128 | | $ | 29,097 |
See Notes to Condensed Consolidated Financial Statements.
2
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except per Share Amounts)
(Unaudited)
| | | | | | | | | | | | |
| | 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 |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating revenues | | $ | 5,027 | | $ | 4,476 | | $ | 9,688 | | $ | 8,588 |
Costs and expenses: | |
|
| | | | |
|
| | | |
Operating | |
| 3,142 | |
| 2,736 | |
| 6,045 | |
| 5,250 |
Selling, general and administrative | |
| 487 | |
| 445 | |
| 978 | |
| 903 |
Depreciation and amortization | |
| 508 | |
| 500 | |
| 990 | |
| 972 |
Restructuring | |
| — | |
| 4 | |
| — | |
| 5 |
(Gain) loss from divestitures, asset impairments and unusual items, net | |
| — | |
| — | |
| 17 | |
| 17 |
| |
| 4,137 | |
| 3,685 | |
| 8,030 | |
| 7,147 |
Income from operations | |
| 890 | |
| 791 | |
| 1,658 | |
| 1,441 |
Other income (expense): | |
|
| | | | |
| | | | |
Interest expense, net | |
| (93) | |
| (98) | |
| (178) | |
| (195) |
Loss on early extinguishment of debt | | | — | | | (220) | | | — | | | (220) |
Equity in net losses of unconsolidated entities | |
| (17) | |
| (11) | |
| (32) | |
| (20) |
Other, net | |
| (4) | |
| (6) | |
| (1) | |
| (5) |
| |
| (114) | |
| (335) | |
| (211) | |
| (440) |
Income before income taxes | |
| 776 | |
| 456 | |
| 1,447 | |
| 1,001 |
Income tax expense | |
| 189 | |
| 105 | |
| 346 | |
| 229 |
Consolidated net income | |
| 587 | |
| 351 | |
| 1,101 | |
| 772 |
Less: Net income (loss) attributable to noncontrolling interests | |
| — | |
| — | |
| 1 | |
| — |
Net income attributable to Waste Management, Inc. | | $ | 587 | | $ | 351 | | $ | 1,100 | | $ | 772 |
Basic earnings per common share | | $ | 1.42 | | $ | 0.83 | | $ | 2.65 | | $ | 1.83 |
Diluted earnings per common share | | $ | 1.41 | | $ | 0.83 | | $ | 2.64 | | $ | 1.82 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
| | | | | | | | | | | | |
| | 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 |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Consolidated net income | | $ | 587 | | $ | 351 | | $ | 1,101 | | $ | 772 |
Other comprehensive income (loss), net of tax: | |
|
| |
|
| |
|
| |
|
|
Derivative instruments, net | |
| 2 | |
| 6 | |
| 3 | |
| 7 |
Available-for-sale securities, net | |
| (7) | |
| 3 | |
| (20) | |
| (2) |
Foreign currency translation adjustments | |
| (27) | |
| 13 | |
| (17) | |
| 26 |
Post-retirement benefit obligations, net | |
| — | | | — | |
| — | |
| — |
Other comprehensive income (loss), net of tax | |
| (32) | | | 22 | |
| (34) | |
| 31 |
Comprehensive income | |
| 555 | |
| 373 | |
| 1,067 | |
| 803 |
Less: Comprehensive income (loss) attributable to noncontrolling interests | |
| — | | | — | |
| 1 | |
| — |
Comprehensive income attributable to Waste Management, Inc. | | $ | 555 | | $ | 373 | | $ | 1,066 | | $ | 803 |
See Notes to Condensed Consolidated Financial Statements.
3
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
| | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
Cash flows from operating activities: |
|
|
| | |
|
|
|
| | |
|
Consolidated net income |
| $ | 772 | | $ | 668 |
| $ | 1,101 | | $ | 772 |
Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |
| | |
|
| |
| | |
|
|
Depreciation and amortization | |
| 972 | |
| 816 | |
| 990 | |
| 972 |
Deferred income tax benefit | |
| (67) | |
| (35) | ||||||
Interest accretion on landfill liabilities | |
| 53 | |
| 49 | ||||||
Deferred income tax (benefit) expense | |
| (64) | |
| (67) | ||||||
Interest accretion on landfill and environmental remediation liabilities | |
| 55 | |
| 53 | ||||||
Provision for bad debts | |
| 17 | |
| 36 | |
| 24 | |
| 17 |
Equity-based compensation expense | |
| 45 | |
| 23 | |
| 51 | |
| 45 |
Net gain on disposal of assets | |
| (12) | |
| (7) | |
| (10) | |
| (12) |
Loss from divestitures, asset impairments and other, net | |
| 17 | |
| 68 | ||||||
(Gain) loss from divestitures, asset impairments and other, net | |
| 17 | |
| 17 | ||||||
Equity in net losses of unconsolidated entities, net of dividends | |
| 22 | |
| 33 | |
| 32 | |
| 22 |
Loss on early extinguishment of debt | | | 220 | | | — | | | — | | | 220 |
Change in operating assets and liabilities, net of effects of acquisitions and divestitures: | |
|
| |
|
| |
|
| |
|
|
Receivables | |
| (24) | |
| 185 | |
| (88) | |
| (24) |
Other current assets | |
| (22) | |
| (1) | |
| (26) | |
| (22) |
Other assets | |
| 9 | |
| 14 | |
| 36 | |
| 9 |
Accounts payable and accrued liabilities | |
| 213 | |
| (171) | |
| 250 | |
| 213 |
Deferred revenues and other liabilities | |
| (52) | |
| (57) | |
| (63) | |
| (52) |
Net cash provided by operating activities | |
| 2,163 | |
| 1,621 | |
| 2,305 | |
| 2,163 |
Cash flows from investing activities: | |
|
| |
|
| |
|
| |
|
|
Acquisitions of businesses, net of cash acquired | |
| (10) | |
| (1) | |
| (10) | |
| (10) |
Capital expenditures | |
| (666) | |
| (895) | |
| (968) | |
| (666) |
Proceeds from divestitures of businesses and other assets, net of cash divested | |
| 17 | |
| 15 | |
| 11 | |
| 17 |
Other, net | |
| (49) | |
| (37) | |
| (133) | |
| (49) |
Net cash used in investing activities | |
| (708) | |
| (918) | |
| (1,100) | |
| (708) |
Cash flows from financing activities: | |
|
| |
|
| |
|
| |
|
|
New borrowings | |
| 1,707 | |
| — | |
| 5,360 | |
| 1,707 |
Debt repayments | |
| (2,326) | |
| (705) | |
| (4,683) | |
| (2,326) |
Premiums and other paid on early extinguishment of debt | | | (211) | | | — | | | — | | | (211) |
Common stock repurchase program | |
| (500) | |
| (402) | |
| (520) | |
| (500) |
Cash dividends | |
| (489) | |
| (466) | |
| (544) | |
| (489) |
Exercise of common stock options | |
| 41 | |
| 42 | |
| 21 | |
| 41 |
Tax payments associated with equity-based compensation transactions | |
| (28) | |
| (34) | |
| (35) | |
| (28) |
Other, net | |
| (4) | |
| (10) | |
| (6) | |
| (4) |
Net cash used in financing activities | |
| (1,810) | |
| (1,575) | |
| (407) | |
| (1,810) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents | |
| 4 | |
| (3) | |
| 1 | |
| 4 |
Decrease in cash, cash equivalents and restricted cash and cash equivalents | |
| (351) | |
| (875) | ||||||
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents | |
| 799 | |
| (351) | ||||||
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period | |
| 648 | |
| 3,647 | |
| 194 | |
| 648 |
Cash, cash equivalents and restricted cash and cash equivalents at end of period |
| $ | 297 | | $ | 2,772 |
| $ | 993 | | $ | 297 |
| | | | | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 148 | | $ | 2,663 | | $ | 894 | | $ | 148 |
Restricted cash and cash equivalents included in other current assets | | | 56 | | | 41 | | | 30 | | | 56 |
Restricted cash and cash equivalents included in restricted trust and escrow accounts | | | 93 | | | 68 | ||||||
Restricted cash and cash equivalents included in restricted funds | | | 69 | | | 93 | ||||||
Cash, cash equivalents and restricted cash and cash equivalents at end of period |
| $ | 297 | | $ | 2,772 |
| $ | 993 | | $ | 297 |
See Notes to Condensed Consolidated Financial Statements.
4
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In Millions, Except Shares in Thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Waste Management, Inc. Stockholders’ Equity | | | | | | | | Waste Management, Inc. Stockholders’ Equity | | | | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | ||
| | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | ||||
| | | | | Common Stock | | Paid-In | | Retained | | Comprehensive | | Treasury Stock | | Noncontrolling | | | | | Common Stock | | Paid-In | | Retained | | Comprehensive | | Treasury Stock | | Noncontrolling | ||||||||||||||||||||
|
| Total |
| Shares |
| Amounts |
| Capital |
| Earnings |
| Income (Loss) |
| Shares |
| Amounts |
| Interests |
| Total |
| Shares |
| Amounts |
| Capital |
| Earnings |
| Income (Loss) |
| Shares |
| Amounts |
| Interests | ||||||||||||||
Three Months Ended June 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2022 | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Balance, March 31, 2022 | | $ | 7,146 | | 630,282 | | $ | 6 | | $ | 5,178 | | $ | 12,247 | | $ | 15 |
| (215,102) | | $ | (10,302) | | $ | 2 | |||||||||||||||||||||||||
Consolidated net income | |
| 587 | | — | |
| — | |
| — | |
| 587 | |
| — |
| — | |
| — | |
| — | |||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | |
| (32) | | — | |
| — | |
| — | |
| — | |
| (32) |
| — | |
| — | |
| — | |||||||||||||||||||||||||
Cash dividends declared of $0.65 per common share | |
| (269) | | — | |
| — | |
| — | |
| (269) | |
| — |
| — | |
| — | |
| — | |||||||||||||||||||||||||
Equity-based compensation transactions, net | |
| 34 | | — | |
| — | |
| 29 | |
| (2) | |
| — |
| 141 | |
| 7 | |
| — | |||||||||||||||||||||||||
Common stock repurchase program | |
| (274) | | — | |
| — | |
| 50 | |
| — | |
| — |
| (2,046) | |
| (324) | |
| — | |||||||||||||||||||||||||
Other, net | |
| — | | — | |
| — | |
| — | |
| — | |
| — |
| 1 | |
| — | |
| — | |||||||||||||||||||||||||
Balance, June 30, 2022 | | $ | 7,192 | | 630,282 | | $ | 6 | | $ | 5,257 | | $ | 12,563 | | $ | (17) |
| (217,006) | | $ | (10,619) | | $ | 2 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ��� | | | | | | | | | | | | | | |
Balance, March 31, 2021 | | $ | 7,429 | | 630,282 | | $ | 6 | | $ | 5,071 | | $ | 11,337 | | $ | 48 |
| (208,201) | | $ | (9,035) | | $ | 2 | | $ | 7,429 | | 630,282 | | $ | 6 | | $ | 5,071 | | $ | 11,337 | | $ | 48 |
| (208,201) | | $ | (9,035) | | $ | 2 |
Consolidated net income | |
| 351 | | — | |
| — | |
| — | |
| 351 | |
| — |
| — | |
| — | |
| — | |
| 351 | | — | |
| — | |
| — | |
| 351 | |
| — |
| — | |
| — | |
| — |
Other comprehensive income (loss), net of tax | |
| 22 | | — | |
| — | |
| — | |
| — | |
| 22 |
| — | |
| — | |
| — | |
| 22 | | — | |
| — | |
| — | |
| — | |
| 22 |
| — | |
| — | |
| — |
Cash dividends declared of $0.575 per common share | |
| (242) | | — | |
| — | |
| — | |
| (242) | |
| — |
| — | |
| — | |
| — | |
| (242) | | — | |
| — | |
| — | |
| (242) | |
| — |
| — | |
| — | |
| — |
Equity-based compensation transactions, net | |
| 44 | | — | |
| — | |
| 33 | |
| (2) | |
| — |
| 310 | |
| 13 | |
| — | |
| 44 | | — | |
| — | |
| 33 | |
| (2) | |
| — |
| 310 | |
| 13 | |
| — |
Common stock repurchase program | |
| (250) | | — | |
| — | |
| — | |
| — | |
| — |
| (1,576) | |
| (250) | |
| — | |
| (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 | | $ | 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.
5
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ─ (Continued)
(In Millions, Except Shares in Thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Waste Management, Inc. Stockholders’ Equity | | | | | | | | Waste Management, Inc. Stockholders’ Equity | | | | ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | ||
| | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | ||||
| | | | | Common Stock | | Paid-In | | Retained | | Comprehensive | | Treasury Stock | | Noncontrolling | | | | | Common Stock | | Paid-In | | Retained | | Comprehensive | | Treasury Stock | | Noncontrolling | ||||||||||||||||||||
| | Total |
| Shares |
| Amounts |
| Capital |
| Earnings |
| Income (Loss) |
| Shares |
| Amounts |
| Interests | | Total |
| Shares |
| Amounts |
| Capital |
| Earnings |
| Income (Loss) |
| Shares |
| Amounts |
| Interests | ||||||||||||||
Six Months Ended June 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2022 | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
Balance, December 31, 2021 | | $ | 7,126 | | 630,282 | | $ | 6 | | $ | 5,169 | | $ | 12,004 | | $ | 17 |
| (214,159) | | $ | (10,072) | | $ | 2 | |||||||||||||||||||||||||
Consolidated net income | |
| 1,101 | | — | |
| — | |
| — | |
| 1,100 | |
| — |
| — | |
| — | |
| 1 | |||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | |
| (34) | | — | |
| — | |
| — | |
| — | |
| (34) |
| — | |
| — | |
| — | |||||||||||||||||||||||||
Cash dividends declared of $1.30 per common share | |
| (544) | | — | |
| — | |
| — | |
| (544) | |
| — |
| — | |
| — | |
| — | |||||||||||||||||||||||||
Equity-based compensation transactions, net | |
| 68 | | — | |
| — | |
| 18 | |
| 3 | |
| — |
| 1,003 | |
| 47 | |
| — | |||||||||||||||||||||||||
Common stock repurchase program | |
| (524) | | — | |
| — | |
| 70 | |
| — | |
| — |
| (3,852) | |
| (594) | |
| — | |||||||||||||||||||||||||
Other, net | |
| (1) | | — | |
| — | |
| — | |
| — | |
| — |
| 2 | |
| — | |
| (1) | |||||||||||||||||||||||||
Balance, June 30, 2022 | | $ | 7,192 | | 630,282 | | $ | 6 | | $ | 5,257 | | $ | 12,563 | | $ | (17) |
| (217,006) | | $ | (10,619) | | $ | 2 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||
2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 | | $ | 7,454 | | 630,282 | | $ | 6 | | $ | 5,129 | | $ | 11,159 | | $ | 39 |
| (207,481) | | $ | (8,881) | | $ | 2 | | $ | 7,454 | | 630,282 | | $ | 6 | | $ | 5,129 | | $ | 11,159 | | $ | 39 |
| (207,481) | | $ | (8,881) | | $ | 2 |
Consolidated net income | |
| 772 | | — | |
| — | |
| — | |
| 772 | |
| — |
| — | |
| — | |
| — | |
| 772 | | — | |
| — | |
| — | |
| 772 | |
| — |
| — | |
| — | |
| — |
Other comprehensive income (loss), net of tax | |
| 31 | | — | |
| — | |
| — | |
| — | |
| 31 |
| — | |
| — | |
| — | |
| 31 | | — | |
| — | |
| — | |
| — | |
| 31 |
| — | |
| — | |
| — |
Cash dividends declared of $1.15 per common share | |
| (489) | | — | |
| — | |
| — | |
| (489) | |
| — |
| — | |
| — | |
| — | |
| (489) | | — | |
| — | |
| — | |
| (489) | |
| — |
| — | |
| — | |
| — |
Equity-based compensation transactions, net | |
| 86 | | — | |
| — | |
| 25 | |
| 2 | |
| — |
| 1,399 | |
| 59 | |
| — | |
| 86 | | — | |
| — | |
| 25 | |
| 2 | |
| — |
| 1,399 | |
| 59 | |
| — |
Common stock repurchase program | |
| (500) | | — | |
| — | |
| (50) | |
| — | |
| — |
| (3,385) | |
| (450) | |
| — | |
| (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 | | $ | 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.
6
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 13.12. 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,“WMI,” we are referring only to Waste Management, Inc., the parent holding company.
We are North America’s leading provider of comprehensive waste management environmental services,solutions, 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. Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provide collection, transfer, disposal, and recycling and resource recovery services. Through our subsidiaries and our WM Renewable Energy business, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and renewable natural gas, which is a significant source of fuel for our natural gas fleet.
We evaluate, overseeIn 2021, our senior management began evaluating, overseeing and managemanaging the financial performance of our Solid Waste business subsidiariesoperations through 2 operating segments. Our East Tier primarily consists of geographic areas located in the Eastern U.S., the Great Lakes region and substantially all of Canada. Our West Tier primarily includes geographic areas located in the Western U.S., including the upper Midwest region, and British Columbia, Canada. Each of our Areas. InSolid Waste operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal. We finalized the secondassessment of our segments during the fourth quarter of 2021, we combined our Eastern2021. The East and Western Canada Areas reducing the number of Areas we manage from 17 to 16. On October 30, 2020, we acquired Advanced Disposal Services, Inc. (“Advanced Disposal”), the operations of whichWest Tiers are presented in this report withinand constitute our existing Solid Waste tiers.business. We also provide additional services that are not managed through our Solid Waste business, which are presented in this report as “Other.” Additional information related to our segments and our acquisition of Advanced Disposal is included in Notes 7 and 8, respectively.Note 7.
The Condensed Consolidated Financial Statements as of June 30, 20212022 and for the three and six months ended June 30, 20212022 and 20202021 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, 2020.2021.
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, intangible asset impairments and the fair value of assets and liabilities acquired in business combinations or asset acquisitions and reserves associated with our insured and self-insured claims.combinations. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
7
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
7
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.
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 five 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.
Sheets. As of June 30, 20212022 and December 31, 2020,2021, we had $170$177 million and $159$175 million, respectively, of deferred contract costs, of which $121$132 million and $118$126 million, respectively, werewas related to deferred sales incentives. During each of the three- and six-month periods ended June 30, 2021 and 2020, we amortized $6 million and $11 million, respectively, of sales incentives to selling, general and administrative 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. 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,funds, 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.
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.
8
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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 | ||||||||||||||||||||||||||||
| | | | | Environmental | | | | | | | | Environmental | | | | | | | | Environmental | | | | | | | | Environmental | | | | ||||
|
| Landfill |
| Remediation |
| Total |
| Landfill |
| Remediation |
| Total |
| Landfill |
| Remediation |
| Total |
| Landfill |
| Remediation |
| Total | ||||||||||||
Current (in accrued liabilities) |
| $ | 129 | | $ | 26 | | $ | 155 | | $ | 138 | | $ | 26 | | $ | 164 |
| $ | 135 | | $ | 29 | | $ | 164 | | $ | 137 | | $ | 29 | | $ | 166 |
Long-term | |
| 2,105 | |
| 194 | |
| 2,299 |
|
| 2,018 | |
| 204 | |
| 2,222 | |
| 2,244 | |
| 182 | |
| 2,426 |
|
| 2,189 | |
| 184 | |
| 2,373 |
|
| $ | 2,234 | | $ | 220 | | $ | 2,454 | | $ | 2,156 | | $ | 230 | | $ | 2,386 |
| $ | 2,379 | | $ | 211 | | $ | 2,590 | | $ | 2,326 | | $ | 213 | | $ | 2,539 |
The changes to landfill and environmental remediation liabilities for the six months ended June 30, 20212022 are reflected in the table below (in millions):
| | | | | | |
| | | | | 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 |
| | | | | | |
| | | | | Environmental | |
|
| Landfill |
| Remediation | ||
December 31, 2021 | | $ | 2,326 | | $ | 213 |
Obligations incurred and capitalized | |
| 56 |
|
| — |
Obligations settled | |
| (43) |
|
| (12) |
Interest accretion | |
| 54 |
|
| 1 |
Revisions in estimates and interest rate assumptions (a) (b) | |
| (13) |
|
| 9 |
Acquisitions, divestitures and other adjustments | |
| (1) |
|
| — |
June 30, 2022 | | $ | 2,379 | | $ | 211 |
(a) | The amount reported for our landfill liabilities includes decreases related to revisions in estimated costs and timing of capping, closure and post-closure liabilities. |
(b) | The amount reported for our environmental remediation liabilities includes a $17 million charge in our Corporate and Other segment to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site, as discussed in Note 6. Partially offsetting this charge was a decrease of $11 million due to an increase from 1.50% at December 31, 2021 to 3.00% at June 30, 2022 in the risk-free discount rate used to measure these liabilities. |
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 1312 for additional information related to these trusts.
9
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. Debt
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 June 30, 2021:2022:
| | | | | | | | | | | | |
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
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 | ||||||
Commercial paper program (weighted average interest rate of 0.4% as of June 30, 2022 and December 31, 2021) | | $ | 1,006 | | $ | 1,778 | ||||||
Term Loan maturing May 2024, interest rate of 2.3% as of June 30, 2022 | | | 1,000 | | | — | ||||||
Senior notes, maturing through 2050, interest rates ranging from 0.75% to 7.75% (weighted average interest rate of 3.2% as of June 30, 2022 and 3.1% as of December 31, 2021) | | | 8,626 | | | 8,126 | ||||||
Canadian senior notes, C$500 million maturing September 2026, interest rate of 2.6% | |
| 403 | | | 393 | |
| 388 | | | 395 |
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 | ||||||
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 0.3% to 4.3% (weighted average interest rate of 1.8% as of June 30, 2022 and 1.4% as of December 31, 2021) | |
| 2,619 | |
| 2,619 | ||||||
Financing leases and other, maturing through 2085, weighted average interest rate of 4.7% as of June 30, 2022 and 4.5% as of December 31, 2021 (a) | |
| 723 | |
| 567 | ||||||
Debt issuance costs, discounts and other | |
| (82) | |
| (85) | |
| (85) | |
| (80) |
| |
| 13,244 | |
| 13,810 | |
| 14,277 | |
| 13,405 |
Current portion of long-term debt | |
| 361 | |
| 551 | |
| 231 | |
| 708 |
| | $ | 12,883 | | $ | 13,259 | | $ | 14,046 | | $ | 12,697 |
(a) | Excluding our landfill financing leases, the maturities of our financing leases and other debt obligations extend through |
Debt Classification
As of June 30, 20212022, we had $2.9approximately $2.4 billion of debt maturing within the next 12 months, including (i) $1.5$1.0 billion of short-term borrowings under our commercial paper program (net of related discount on issuance); (ii) $1.2 billion$625 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturitiesmaturities; (iii) $500 million of 2.4% senior notes that mature in May 2023 and (iii) $212(iv) $226 million of other debt with scheduled maturities within the next 12 months, including $103$111 million of tax-exempt bonds. As of June 30, 2021,2022, we have classified $2.6$2.1 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 $361$231 million of debt maturing in the next 12 months is classified as current obligations.
AsAdditionally, as of June 30, 2021,2022, we also had $54 million of variable-rate tax-exempt bonds with long-term scheduled maturities which are 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 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 June 30, 2021.Sheet.
10
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Access to and Utilization of Credit Facilities and Commercial Paper Program
$3.5 Billion Revolving Credit Facility — OurIn May 2022, we amended and restated our $3.5 billion U.S. and Canadian revolving credit facility extending the term through May 2027. The agreement includes a $1.0 billion accordion feature that may be used to increase total capacity in future periods, and we have the option to request up to two one-year extensions. Waste Management of Canada Corporation and WM Quebec Inc., each an indirect wholly-owned subsidiary of WMI, are borrowers under the $3.5 billion revolving credit facility, maturing November 2024,and the agreement permits borrowing in Canadian dollars up to the U.S. dollar equivalent of $375 million, with such borrowings to be repaid in Canadian dollars. WM Holdings, a wholly-owned subsidiary of WMI, guarantees all the obligations under the $3.5 billion revolving credit facility.
The $3.5 billion revolving credit facility provides us with credit capacity to be used for cash borrowings, to support letters of credit andor to support our commercial paper program. The interest rates we pay foron outstanding U.S. or Canadian loans are generally based on LIBORa secured overnight financing rate administered by the Federal Reserve Bank of New York (“SOFR”) or CDOR,the Canadian Dollar Offered Rate (“CDOR”), respectively, plus a spread depending on the Company’sWMI’s senior public debt rating assigned by Moody’s Investors Service, Inc. and Standard and Poor’s.Poor’s Global Ratings. The spread above SOFR or CDOR can range from 0.585% to 1.025% per annum, plus a credit adjustment spread of 0.10% per annum on SOFR-based rates (the “SOFR Credit Adjustment Spread”) to account for the transition from the use of LIBOR to SOFR in such rate calculations. We also pay certain other fees set forth in the $3.5 billion revolving credit facility agreement, including a facility fee based on the aggregate commitment, regardless of usage. As of June 30, 2021,2022, we had 0 outstanding borrowings under this facility. We had $266$166 million of letters of credit issued and $1.5$1.0 billion of outstanding borrowings (net of related discount on issuance) under our commercial paper program, both supported by the facility, leaving unused and available credit capacity of $1.7$2.3 billion as of June 30, 2021.2022.
Pursuant to the terms of the $3.5 billion revolving credit facility, and as a mechanism to align our environmental, social and governance (“ESG”) focus and strategy across external and internal stakeholders, the Company, in consultation with one or more banks selected by the Company to be the sustainability coordinator under the applicable credit agreement (the “Sustainability Coordinator”), has the ability to establish specified key performance indicators (“KPIs”) with respect to certain ESG targets of the Company and its subsidiaries. The Sustainability Coordinator, the Company and the administrative agent may amend the credit agreement, unless such amendment is objected to by banks holding more than 50% of the commitments under such credit agreement, solely for the purpose of incorporating the KPIs so that certain adjustments to the otherwise applicable fees or interest rates may be made based on our performance against the KPIs.
$1.0 Billion, Two-Year, Term Credit Agreement— In May 2022, we entered into a $1.0 billion, two-year, U.S. term credit agreement (“Term Loan”) to be used for general corporate purposes. The interest rate we pay on our outstanding balance is generally based on SOFR, plus a spread depending on WMI’s senior public debt rating assigned by Moody’s Investors Service, Inc. and Standard and Poor’s Global Ratings. The spread above SOFR can range from 0.50% to 0.90% per annum, plus the SOFR Credit Adjustment Spread. As discussed above with respect to our $3.5 billion revolving credit facility, the Term Loan also permits the Company to pursue an amendment of the credit agreement to incorporate certain ESG KPIs and related adjustments to applicable fees or interest rates based on performance against the KPIs. As of June 30, 2022, we had $1.0 billion of outstanding borrowings under our Term Loan. WM Holdings a wholly-owned subsidiary of WM,also guarantees all of the obligations under the $3.5 billion revolving credit facility.Term Loan.
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 June 30, 2021,2022, we had $1.5$1.0 billion of outstanding borrowings (net of related discount on issuance) under our commercial paper program.
Other Letter of Credit Lines — As of June 30, 2021,2022, we had utilized $615$767 million of other uncommitted letter of credit lines with terms maturing through June 2022.
Debt Borrowings and Repayments
Commercial Paper Program — During the six months ended June 30, 2021, we made cash repayments of $954 million, which were partially offset by $640 million of cash borrowings (net of related discount on issuance).
Senior Notes — 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 1, 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 included the principal amount of the debt retired, $211 million of related premiums and other third-party costs, and $15 million of accrued interest.2023.
11
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We recognized a $220 million loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations related to the tender offer, including $211 million of premiumsDebt Borrowings and other third-party costs and $9 million primarily 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.
Repayments
Tax-Exempt BondsCommercial Paper Program — We issued $125 million of new tax-exempt bonds in 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. Additionally, duringDuring the six months ended June 30, 2021,2022, we repaid $24made cash repayments of $4.1 billion, which were partially offset by $3.4 billion of cash borrowings (net of related discount on issuance).
Term Loan — In May 2022, we borrowed $1.0 billion under our Term Loan to be used for general corporate purposes.
Senior Notes — In May 2022, WMI issued $1.0 billion of 4.15% senior notes due April 15, 2032, the net proceeds of which were $992 million. We used the net proceeds to redeem our $500 million of our tax-exempt bonds with available cash at2.9% senior notes due September 2022 in advance of their scheduled maturities.maturity, to repay a portion of outstanding borrowings under our commercial paper program and for general corporate purposes.
Financing Leases and Other — The decreaseincrease in our financing leases and other debt obligations during the six months ended June 30, 20212022 is dueprimarily related to $59our new federal low-income housing investment discussed in Note 4, which increased our debt obligations by $183 million. The increase in our debt obligations was partially offset by $42 million of cash repayments of debt at maturity, partially offset by an increase of $32 million primarily associated with non-cash financing leases.maturity.
4. Income Taxes
Our effective income tax rate was 24.3% and 23.9% for the three and six months ended June 30, 2022, respectively, compared with 22.9% and 22.8% for the three and six months ended June 30, 2021, respectively, compared with 22.2% and 19.5% for the three and six months ended June 30, 2020, respectively.
The increase in our effective income tax rate when comparing the three and six months ended June 30, 2022 and 2021 with the prior year period was due to (i)primarily driven by an increase in pre-tax income in 2022 resulting in a decrease in the benefits realized on tax audit settlements and (ii) lowerdecreased rate benefit from 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 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 2020.
12
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. In February 2022, we acquired an additional noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. Total consideration for this investment is expected to be $253 million, comprised of a $183 million note payable discussed in Note 3, an initial cash payment of $28 million and $42 million of interest payments expected to be paid over the life of the investment. At the time of the investment, we increased our investments in unconsolidated entities in our Condensed Consolidated Balance Sheet by $211 million, representing the principal balance of the note and the initial cash investment. We support the operations of these entities in exchange for a pro-ratapro rata share of the tax credits they generate. The low-income housing investments qualify for federal tax credits that we expect to realize through 20302033 under Section 42 or Section 45D of the Internal Revenue Code. We also held a residual financial interest in an entity that 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 six months ended June 30, 2022, we recognized $17 million and $31 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, 2022 of $25 million and $48 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, 2022, we recognized interest expense of $4 million and $6 million, respectively, associated with our investments in low-income housing properties.
During the three and six months ended 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 $17 million and $43 million, respectively, (including the $7 million impairment of the refined coal facility noted above for the six-month period) 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, 2020 of $17 million and $41 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, 2020, we recognized interest expense of $3 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 — During the first quarter of 2020, we recognized a reduction in our income tax expense of $6 million for adjustments to accruals and related deferred taxes.
1312
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
we recognized interest expense of $3 million and $5 million, respectively, associated with our investments in low-income housing properties. See Note 12 for additional information related to these unconsolidated variable interest entities.
Equity-Based Compensation — We recognized excess tax benefits related to the vesting or exercise of equity-based compensation awards resulting in reductions in income tax expense of $2 million and $12 million for the three and six months ended June 30, 2022, compared to $2 million and $11 million, for the comparable prior year periods.
5. Earnings Per Share
Basic and diluted earnings per share were computed using the following common share data (shares in millions):
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
Number of common shares outstanding at end of period |
| 420.8 |
| 422.2 |
| 420.8 |
| 422.2 |
| 413.3 |
| 420.8 |
| 413.3 |
| 420.8 |
Effect of using weighted average common shares outstanding |
| 0.8 |
| 0.1 |
| 1.5 |
| 1.0 |
| 1.1 |
| 0.8 |
| 1.7 |
| 1.5 |
Weighted average basic common shares outstanding |
| 421.6 |
| 422.3 |
| 422.3 |
| 423.2 |
| 414.4 |
| 421.6 |
| 415.0 |
| 422.3 |
Dilutive effect of equity-based compensation awards and other contingently issuable shares |
| 2.0 |
| 1.6 |
| 1.7 |
| 1.9 |
| 2.0 |
| 2.0 |
| 2.0 |
| 1.7 |
Weighted average diluted common shares outstanding |
| 423.6 |
| 423.9 |
| 424.0 |
| 425.1 |
| 416.4 |
| 423.6 |
| 417.0 |
| 424.0 |
Potentially issuable shares |
| 6.1 |
| 6.5 |
| 6.1 |
| 6.5 |
| 5.8 |
| 6.1 |
| 5.8 |
| 6.1 |
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding |
| 0.6 |
| 2.1 |
| 1.0 |
| 2.1 |
| 1.4 |
| 0.6 |
| 1.8 |
| 1.0 |
Refer to the Condensed Consolidated Statements of Operations for net income attributable to Waste Management, Inc.
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 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. 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.policy and any amounts that exceed our insured limits. Our exposure could increase if our insurers are unable to meet their commitments on a timely basis.
13
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.general liability insurance policy. For our self-insured portions, the exposure for unpaid claims and associated expenses, including incurred but not reported losses, is 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.
14
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Guarantees — In the ordinary course of our business, WMWMI and WM Holdings enter into guarantee agreements associated with their subsidiaries’ operations. Additionally, WMWMI 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 June 30, 20212022, we have guaranteed the obligations and certain performance requirements of third parties in connection with both consolidated and unconsolidated entities, including guarantees to cover the difference, if any, between the sale value and the guaranteed market or contractually-determined value of certain market value losses for certainhomeowner’s properties that are adjacent to or near 1817 of our landfills. We have also agreed to indemnify certain third-party purchasers against liabilities associated with divested operations prior to such sale. 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.
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 $135$140 million higher than the $220$211 million recorded in the Condensed Consolidated Balance Sheet as of June 30, 2021.2022. 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 June 30, 2021,2022, we have been notified by the government that we are a PRP in connection with 73 locations listed on the Environmental Protection Agency’s (“EPA’s”) Superfund National Priorities List (“NPL”). Of the 73 sites at which claims have been made against us, 14 are sites we own. Each of the NPL sites we own was initially developed by
14
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 evaluatecharacterize 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 59 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
15
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 pitsRiver Waste Pits Site in Harris County, Texas. McGinnes Industrial Maintenance Corporation (“MIMC”), an indirect wholly-owneda subsidiary of WM,Waste Management of Texas, Inc., operated some of the waste pits from 1965 to 1966 and has been named as a site PRP. In 1998, WMWMI 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 June 30, 2021site, and December 31, 2020, thewe recorded a liability for MIMC’s estimated potential share of the EPA’s proposed remedy and related costs, although allocation of responsibility among the PRPs for the proposed remedy has not been established. MIMC and International Paper Company have continued to work on a remedial design to support the EPA’s proposed remedy; however, design investigations indicate that fundamental changes are required to the proposed remedy and MIMC maintains its prior position that the remedy set forth in the ROD is not the best solution to protect the environment and public health. Due to further increases in the estimated cost of the remedy set forth in the ROD, we recorded an additional liability of $17 million as of March 31, 2022 for MIMC’s estimated potential share of such costs. As of June 30, 2022 and December 31, 2021, the recorded liability for MIMC’s estimated potential share of the EPA’s proposed remedy was $53$68 million and $55$53 million, respectively. MIMC’s ultimate liability could be materially different from current estimates.estimates and MIMC will continue to engage the EPA regarding its proposed remedy.
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, below a stated threshold. In accordance with this SEC regulation, the Company uses a threshold of $1 million for purposes of determining whether disclosure of any such environmental proceedings is required. As of the date of this filing, we are not aware of any matters that are required to be disclosed pursuant to this 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
15
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, weWe 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’sWMI’s charter and bylaws provide that WMWMI 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
16
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’sWMI’s Board of Directors and each of WM’sWMI’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 post-examination and post-appeals phase of the IRS audit for the 2017 tax year and considering the options available to resolve remaining disagreements with the IRS. In addition, we are in the examination phase of IRS audits for the 2017 through 2021 and 2022 tax years and expect these audits to be completed within the next 21 months. We are also currently undergoing audits by various
16
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, overseeIn 2021, our senior management began evaluating, overseeing and managemanaging the financial performance of our Solid Waste business subsidiariesoperations through 2 operating segments. Our East Tier primarily consists of geographic areas located in the Eastern U.S., the Great Lakes region and substantially all of Canada. Our West Tier primarily includes geographic areas located in the Western U.S., including the upper Midwest region, and British Columbia, Canada. Each of our Solid Waste operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal. The Company finalized the assessment of our segments during the fourth quarter of 2021. The East and West Tiers are presented in this report and constitute our existing Solid Waste business. This did not result in a change in our reporting units for purposes of evaluating our goodwill. Reclassifications have been made to our prior period consolidated financial information to conform to the current year presentation.
The operating segments not evaluated and overseen through our Areas. InEast and West Tiers are presented herein as “Other” as these operating segments do not meet the second quarter of 2021, we combined our Eastern and Western Canada Areas reducing the number of Areas we manage from 17criteria to 16. The 16 Areas constitutebe aggregated with other operating segments and we have evaluateddo not meet the aggregationquantitative 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 presentingto be separately reported.
Summarized financial information concerning our reportable segments. Accordingly, we have aggregated our 16 Areas into 3 tiers that we believe have similar economic characteristics and future prospects basedsegments is shown 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.following table (in millions):
| | | | | | | | | | | | |
| | Gross | | Intercompany | | Net | | Income | ||||
| | Operating | | Operating | | Operating | | from | ||||
|
| Revenues |
| Revenues(d) |
| Revenues |
| Operations(e) | ||||
Three Months Ended June 30: |
| |
|
| |
|
| |
|
| |
|
2022 |
| |
|
| |
|
| |
|
| |
|
Solid Waste: |
| |
|
| |
|
| |
|
| |
|
East Tier | | $ | 2,609 | | $ | (496) | | $ | 2,113 | | $ | 581 |
West Tier | |
| 2,612 | |
| (540) | |
| 2,072 | |
| 608 |
Solid Waste (a) | |
| 5,221 | |
| (1,036) | |
| 4,185 | |
| 1,189 |
Other (b) | |
| 901 | |
| (59) | |
| 842 | |
| 18 |
| | | 6,122 | | | (1,095) | | | 5,027 | | | 1,207 |
Corporate and Other (c) | |
| — | |
| — | |
| — | |
| (317) |
Total | | $ | 6,122 | | $ | (1,095) | | $ | 5,027 | | $ | 890 |
| | | | | | | | | | | | |
2021 | |
|
| |
|
| |
|
| |
|
|
Solid Waste: | |
|
| |
|
| |
|
| |
|
|
East Tier | | $ | 2,339 | | $ | (439) | | $ | 1,900 | | $ | 512 |
West Tier | |
| 2,367 | |
| (488) | |
| 1,879 | |
| 553 |
Solid Waste (a) | |
| 4,706 | |
| (927) | |
| 3,779 | |
| 1,065 |
Other (b) | |
| 729 | |
| (32) | |
| 697 | |
| 6 |
| |
| 5,435 | |
| (959) | |
| 4,476 | |
| 1,071 |
Corporate and Other (c) | |
| — | |
| — | |
| — | |
| (280) |
Total | | $ | 5,435 | | $ | (959) | | $ | 4,476 | | $ | 791 |
17
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(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 |
18
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(d) |
| Revenues |
| Operations |
| Revenues |
| Revenues(d) |
| Revenues |
| Operations(e) | ||||||||
Six Months Ended June 30: | | | | | | | | | | | | | | | | | | | | | | | | |
2021 |
| |
|
| |
|
| |
|
| |
| ||||||||||||
2022 |
| |
|
| |
|
| |
|
| |
| ||||||||||||
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 | ||||||||||||
East Tier | | $ | 4,992 | | $ | (941) | | $ | 4,051 | | $ | 1,112 | ||||||||||||
West Tier | |
| 5,018 | |
| (1,030) | |
| 3,988 | |
| 1,157 | ||||||||||||
Solid Waste (a) | |
| 9,012 | |
| (1,763) | |
| 7,249 | |
| 1,974 | |
| 10,010 | |
| (1,971) | |
| 8,039 | |
| 2,269 |
Other (b) | |
| 1,394 | |
| (55) | |
| 1,339 | |
| 22 | |
| 1,758 | |
| (109) | |
| 1,649 | |
| 19 |
| | | 10,406 | | | (1,818) | | | 8,588 | | | 1,996 | | | 11,768 | | | (2,080) | | | 9,688 | | | 2,288 |
Corporate and Other (c) | |
| — | |
| — | |
| — | |
| (555) | |
| — | |
| — | |
| — | |
| (630) |
Total | | $ | 10,406 | | $ | (1,818) | | $ | 8,588 | | $ | 1,441 | | $ | 11,768 | | $ | (2,080) | | $ | 9,688 | | $ | 1,658 |
| | | | | | | | | | | | | | | | | | | | | | | | |
2020 | |
|
| |
|
| |
|
| |
|
| ||||||||||||
2021 | |
|
| |
|
| |
|
| |
|
| ||||||||||||
Solid Waste: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Tier 1 | | $ | 1,999 | | $ | (360) | | $ | 1,639 | | $ | 558 | ||||||||||||
Tier 2 | |
| 2,450 | |
| (517) | |
| 1,933 | |
| 477 | ||||||||||||
Tier 3 | |
| 3,295 | |
| (631) | |
| 2,664 | |
| 532 | ||||||||||||
East Tier | | $ | 4,467 | | $ | (833) | | $ | 3,634 | | $ | 965 | ||||||||||||
West Tier | |
| 4,545 | |
| (930) | |
| 3,615 | |
| 1,028 | ||||||||||||
Solid Waste (a) | |
| 7,744 | |
| (1,508) | |
| 6,236 | |
| 1,567 | |
| 9,012 | |
| (1,763) | |
| 7,249 | |
| 1,993 |
Other (b) | |
| 1,108 | |
| (54) | |
| 1,054 | |
| (35) | |
| 1,394 | |
| (55) | |
| 1,339 | |
| 26 |
| |
| 8,852 | |
| (1,562) | |
| 7,290 | |
| 1,532 | |
| 10,406 | |
| (1,818) | |
| 8,588 | |
| 2,019 |
Corporate and Other (c) | |
| — | |
| — | |
| — | |
| (432) | |
| — | |
| — | |
| — | |
| (578) |
Total | | $ | 8,852 | | $ | (1,562) | | $ | 7,290 | | $ | 1,100 | | $ | 10,406 | | $ | (1,818) | | $ | 8,588 | | $ | 1,441 |
(a) | 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. |
The increase in incomeIncome from operations across the Tiers wasin our Solid Waste business increased primarily due to (i) revenue growth in our collection and disposal businesses driven by both volumeyield 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.volume. These increases were partially offset by (i) higher incentive compensation costs; (ii) inflationary cost pressures and (iii)labor cost pressure from frontline employee wage adjustments, increased hiring driving up training costs and higher overtime driven by increased volumesdue to driver shortages 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, income from operations 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 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.volume growth.
(b) | “Other” includes (i) elements of our Strategic Business Solutions (“WMSBS”) |
19
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recycling brokerage |
The increase in income from operations was primarily driven by (i) 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 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 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 increasedecrease in these costsincome from operations from our Corporate and Other segment was primarily driven by increased costs for (i) labor, particularly due to higher incentive compensation costs;costs and merit increases; (ii) strategic investments in our digital platform;platform and (iii) increasesinvestments in health and welfare our sustainability initiatives. The impact of these higher
18
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
costs attributablewas partially offset by lower integration costs related 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. The six months ended June 30, 2021, as compared withDisposal and the impact of adjustments from closure and post- closure activity at our closed landfills in the 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 and 2021.periods.
(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. |
(e) | In the fourth quarter of 2021, we discontinued certain allocations from our Corporate and Other segment to our Solid Waste operating segments and Other segment. Reclassifications have been made to our prior period information for comparability purposes. |
The mix of operating revenues from our major lines of business are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
Commercial | | $ | 1,178 | | $ | 928 | | $ | 2,309 | | $ | 1,991 | | $ | 1,355 | | $ | 1,178 | | $ | 2,642 | | $ | 2,309 |
Industrial | |
| 942 | |
| 811 | |
| 1,778 | |
| 1,554 | ||||||||||||
Residential | |
| 794 | |
| 657 | |
| 1,576 | |
| 1,307 | |
| 832 | |
| 794 | |
| 1,637 | |
| 1,576 |
Industrial | |
| 811 | |
| 625 | |
| 1,554 | |
| 1,318 | ||||||||||||
Other collection | |
| 135 | |
| 115 | |
| 251 | |
| 227 | |
| 181 | |
| 135 | |
| 334 | |
| 251 |
Total collection | |
| 2,918 | |
| 2,325 | |
| 5,690 | |
| 4,843 | |
| 3,310 | |
| 2,918 | |
| 6,391 | |
| 5,690 |
Landfill | |
| 1,075 | |
| 874 | |
| 1,990 | |
| 1,761 | |
| 1,194 | |
| 1,075 | |
| 2,245 | |
| 1,990 |
Transfer | |
| 532 | |
| 439 | |
| 997 | |
| 880 | |
| 554 | |
| 532 | |
| 1,040 | |
| 997 |
Recycling | |
| 397 | |
| 275 | |
| 739 | |
| 529 | |
| 468 | |
| 397 | |
| 921 | |
| 739 |
Other (a) | |
| 513 | |
| 409 | |
| 990 | |
| 839 | |
| 596 | |
| 513 | |
| 1,171 | |
| 990 |
Intercompany (b) | |
| (959) | |
| (761) | |
| (1,818) | |
| (1,562) | |
| (1,095) | |
| (959) | |
| (2,080) | |
| (1,818) |
Total | | $ | 4,476 | | $ | 3,561 | | $ | 8,588 | | $ | 7,290 | | $ | 5,027 | | $ | 4,476 | | $ | 9,688 | | $ | 8,588 |
(a) | The “Other” line of business includes (i) certain services provided by our WMSBS business; (ii) our landfill |
20
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. 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.
Prior year period operating results were negatively impacted by COVID-19, as volumes declined beginning in March 2020 in our landfill, 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.
Service disruptions caused by severe storms, extended periods of inclement weather or climate events can significantly impactaffect the operating results of the Areasgeographic 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 Areasgeographic areas affected as a result of the waste volumes generated by these events. While weather-related and other 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. Acquisition of Advanced Disposal
On October 30, 2020, we completed the 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 3 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.
Our consolidated financial statements have not been retroactively restated to include Advanced Disposal’s historical financial position or results of operations. The acquisition was accounted for as a business combination. In accordance with the purchase method of accounting, the purchase price paid has been allocated to the assets and liabilities acquired based upon their estimated fair values as of the acquisition date, with the excess of the purchase price over the net assets acquired recorded as goodwill. We have substantially completed our valuation processes of all of the assets and liabilities acquired in the acquisition, however, until we have completed our valuation process, there may be adjustments to our estimates of fair value and 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 integrated these operations as they are benefiting from the synergies of the combination. Goodwill related to this acquisition is not deductible for income tax purposes.
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WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
revenues through additional work for a limited time, due to significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.
8. Divestitures, Asset Impairments and Unusual Items
For the six months ended June 30, 2022, we recognized a $17 million charge in the first quarter in our Corporate and Other segment to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site, as discussed in Note 6.
For the six months ended June 30, 2021, we recognized net charges of $17 million in the first quarter consisting of (i) a $19 million charge pertaining to reserves for loss contingencies in our Corporate and Other segment and (ii) $6 million of asset impairment charges primarily related to our WM Renewable Energy business within our Other segment, which were partially offset by an $8 million gain from divestitures of certain ancillary operations in our Other segment.
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 |
|
|
|
|
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.
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 $17 million in the first quarter of 2021 consisting of (i) a $19 million charge pertaining to reserves for loss contingencies in our Corporate and Other segment and (ii) $6 million of asset impairment charges primarily related to our WM Renewable Energy business within our Other
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WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 2 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 2 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.
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.
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 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).
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 |
| 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 |
| | | | | | | | | | | | | | | |
| | | | | | | | Foreign | | Post- | | | | ||
| | | | | Available- | | Currency | | Retirement | | | | |||
| | Derivative | | for-Sale | | Translation | | Benefit | | | | ||||
|
| Instruments |
| Securities |
| Adjustments |
| Obligations |
| Total | |||||
Balance, December 31, 2021 | | $ | — | | $ | 43 | | $ | (29) | | $ | 3 | | $ | 17 |
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $0, $(7), $0 and $0, respectively | |
| — | |
| (20) | |
| — | |
| — | |
| (20) |
Amounts reclassified from accumulated other comprehensive (income) loss, net of tax (expense) benefit of $(1), $0, $0 and $0, respectively | |
| 3 | |
| — | |
| (17) | |
| — | |
| (14) |
Net current period other comprehensive income (loss) | |
| 3 | |
| (20) | |
| (17) | |
| — | |
| (34) |
Balance, June 30, 2022 | | $ | 3 | | $ | 23 | | $ | (46) | | $ | 3 | | $ | (17) |
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WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11.10. 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 Februarythe fourth quarter of 2021, we entered intoexecuted an accelerated share repurchase (“ASR”) agreement to repurchase $250$350 million of our common stock. At the beginning of the repurchase period, we delivered $250$350 million in cash and received 1.81.7 million shares based on a stock price of $110.56.$160.67. The ASR agreement completed in the second quarter of 2021,January 2022, at which time we received 0.20.4 million additional shares based on a final weighted average price of $126.83.$160.33.
In May 2021,the first quarter of 2022, 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.$146.43. The ASR agreement completed in April 2022, at which time we received 0.3 million additional shares based on a final number of shares to be repurchased and the finalweighted average price per share underof $153.14.
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WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In the second quarter of 2022, we entered into an ASR agreement to repurchase $250 million of our common stock. We delivered $250 million cash and received a total of 1.6 million shares based on a final weighted average price of $154.73. In June 2022, after the completion of the ASR agreement, will depend onwe repurchased 0.2 million shares of our common stock in open market transactions in compliance with Rule 10b5-1 and Rule 10b-18 of the volume-weightedExchange Act for $24 million, inclusive of per-share commissions, at a weighted average price of our stock, less a discount, during the term$146.74, of the agreement. Purchases under the ASR agreement are expected to be completedwhich $4 million was paid in July 2021.2022.
As of June 30, 2021,2022, the Company has authorization for $850$976 million of future share repurchases. 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.
12.11. 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):
| | | | | | | | | | | | |
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
Fair Value Measurements Using: | | | | | | | ||||||
Quoted prices in active markets (Level 1): | | | | | | | | | | | | |
Cash equivalents and money market funds (a) |
| $ | 87 |
| $ | 530 |
| $ | 878 |
| $ | 38 |
Equity securities | | | 34 | | | 25 | ||||||
Significant other observable inputs (Level 2): | | | | | | | | | | | | |
Available-for-sale securities (b) |
| | 447 |
| | 390 |
| | 407 |
| | 395 |
Significant unobservable inputs (Level 3): | | | | | | | | | | | | |
Redeemable preferred stock (c) |
| | 49 |
| | 49 |
| | 56 |
| | 49 |
Total Assets |
| $ | 583 | | $ | 969 |
| $ | 1,375 | | $ | 507 |
(a) | The |
(b) | Our available-for-sale securities primarily relate to debt securities with maturities over the next |
(c) |
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.
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WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value of Debt
As of June 30, 20212022 and December 31, 2020,2021, the carrying value of our debt was $13.2$14.3 billion and $13.8$13.4 billion, respectively. The estimated fair value of our debt was approximately $14.0$13.3 billion and $15.2$14.1 billion as of June 30, 20212022 and December 31, 2020,2021, respectively. The decrease in the fair value of debt is primarily related to net repayments of $619 million during 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 of 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,
21
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 June 30, 20212022 and December 31, 2020.2021. These amounts have not been revalued since those dates, and current estimates of fair value could differ significantly from the amounts presented.
13.12. Variable Interest Entities
Following is a description of our financial interests in unconsolidated and consolidated variable interest entities that we consider significant:
Low-Income Housing Properties
We do not consolidate our investments in entities established to manage low-income housing properties 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 $207$356 million and $228$178 million as of June 30, 20212022 and December 31, 2020,2021, respectively. The debt balance related to our investments in low-income housing properties was $183$321 million and $210$156 million as of June 30, 20212022 and December 31, 2020,2021, respectively. 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 $109$94 million and $106$110 million as of June 30, 20212022 and December 31, 2020,2021, 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 escrowfunds 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 $117$114 million and $114$117 million as of June 30, 20212022 and December 31, 2020,2021, respectively.
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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, 2020.2021.
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-lookingforward 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 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 orand 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 obtain other results anticipated from such acquisition; environmental and other regulations, including developments related to emerging contaminants, gas emissions and renewable fuel; significant environmental, safety or other incidents resulting in liabilities or brand damage; failure to obtain and maintain necessary permits; failure to attract, hire and retain key team members and a high quality workforce; changes in wage and labor disruptions and wage-relatedrelated regulations; significant storms and destructive climate events; public health risk and other impacts of COVID-19 or similar pandemic conditions, including related regulations, resulting in increased costs and social, labor and commercial disruption; macroeconomic pressures and market disruption resulting in labor, supply chain and service reductions;transportation constraints and inflationary cost pressure; increased competition; pricing actions; commodity price fluctuations; impacts from Russia’s invasion of Ukraine and the resulting geopolitical conflict and international response, including increased risk of cyber incidents and exacerbation of market disruption, inflationary cost pressure and changes in commodity prices, fuel and other energy costs; 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 and human capital management system; failure to prevent, detect and address cybersecurity incidents or comply with privacy regulations; negative outcomes of litigation or governmental 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, 2020. The Company is optimistic about volume recovery and overall economic recovery as 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 business.2021. 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,solutions, 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 inthroughout 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 are also use waste to create energy, recoveringa leading developer, operator and owner of landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and renewable natural gas, produced naturally as waste decomposes in landfills and using thewhich is a significant source of fuel for our natural gas in generators to make electricity or natural gas.fleet. Additionally, we are a leading recycler in 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 providesprovide collection, transfer, disposal, and recycling and resource recovery services. Consistent with our Company’s long-standing commitment to corporate sustainability and environmental stewardship, we published our 20202021 Sustainability Report, which details our people-first commitment
26
to help make the communities in which we live and work safe, resilient, and
23
sustainable. The information in this report can be found at https://sustainability.wm.com but it does not constitute a part of, and is not incorporated by reference into, this Quarterly Report on Form 10-Q.
In 2021, our senior management began evaluating, overseeing, and managing the financial performance of our Solid Waste operations through two operating segments. Our East Tier primarily consists of geographic areas located in the Eastern U.S., the Great Lakes region and substantially all of Canada. Our West Tier primarily includes geographic areas located in the Western U.S., including the upper Midwest region, and British Columbia, Canada. Each of our Solid Waste operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal.
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 accountconsidering 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 feefees 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 Operationsbelow.
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
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 services safely and efficiently. We continue to operate with a focus on protecting the health and safety of our employees and maintaining business continuity for our 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 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 last year, our volumes have been recovering from the sharp decline experienced in April 2020 as a result of COVID-19. The pace of recovery in our volumes accelerated in the 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 were our industrial and commercial collection businesses and construction and demolition and special waste volumes at our landfills. As we exited the 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 re-opening of facilities where we temporarily suspended operations during the pandemic. We continue to be optimistic about our volume recovery in 2021 as the economy continues to rebound and states and local jurisdictions continue re-opening. 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 adversely impact our volumes and costs over the 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. As North America’s leading provider of comprehensive environmental solutions, sustainability and environmental stewardship is embedded in all that we do. We have enabled a people-first, technology-led focus to drive our mission to maximize resource value, while minimizing environmental impact, so that both our economy and our environment can thrive. Our strategy 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 enhancementsand investing in automation to our digital platform, process improvementimprove processes and drive 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 monitorimprove existing diversion technologies, such as through investments in our recycling operations, we are also evaluating and pursuing 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.value.
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 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 This includes expanding traditional recycling services, increasing organics collection, and processing, and expanding our renewable energy projects to meet the evolving needs of our diverse customer base. As the leading waste management environmental services provider in recent years,North America, we are taking big, bold steps to catalyze positive change – change that will impact our Company as well as the communities we serve. Our sustainability agenda includes expanding recycling and focuses on meeting or exceeding specific 2025 and 2038 sustainability goals around people, customers, the environment, and community, which align with eight of the United Nations Sustainable Development Goals.
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We encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, service quality, customer experience and breadthto a much lesser extent, the nature of service offerings.offerings, particularly in the residential line of business. 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 and other macroeconomic trends, 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 challengingimpact our strategy to implement our pricing strategy and negotiate, renew, or expand service contracts with acceptable margins.and grow our business. 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 and a heightened pace of inflation. Volume changes can fluctuate dramatically by line of business and volume changes in higher margin businesses, such as what we saw with COVID-19, can impact key financial metrics. In this type of environment, weWe must dynamically manage our cost structure.structure in response to volume changes and cost inflation.
We believe the Company’s industry-leading asset network and strategic focus on investing in our people and our digital platform will give the Company the necessary tools to address the evolving challenges impacting the Company and our industry. In line with our commitment to continuous improvement and a differentiated customer experience, we remain focused on our customer service digitalization initiative to change the way we interact with our customers. Enhancements made through this initiative are designedintended 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,In late 2021, we began to execute on the next phase of this technology enablement strategy to automate and optimize certain elements of our service delivery model. This next phase will prioritize reduced labor dependency on certain high-turnover jobs, particularly in customer experience, recycling and residential collection. We continue to make meaningful progress onthese investments to further digitalize our customer self-service and implement technologies to further enhance the implementationsafety, reliability and efficiency of our collection operations. Additionally, in early 2022, we implemented our new enterprise resource planning system.system that will contribute to operational and service excellence by empowering our people through a modern, simplified and connected finance and accounting platform.
DuringCertain macroeconomic pressures and market disruption, driven in part by the COVID-19 pandemic and other external events and conditions, intensified during the second quarterhalf of 2021 and have continued through the first half of 2022. The constrained labor market has resulted in increased costs for wage adjustments, overtime hours and training new hires to address frontline employee turnover, increased volume, and operational challenges. The COVID-19 pandemic and other external events and conditions have also contributed to significant global supply chain disruption and inflationary pressure for the goods and services we beganpurchase, with a particular impact on our repair and maintenance costs. Supply chain constraints have also caused delayed delivery of fleet, steel containers and other purchases. Aspects of our business rely on third-party transportation providers, and such services have become more limited and expensive. Additionally, we are currently experiencing margin pressures from commodity-driven business impacts, particularly from higher fuel prices and recycling brokerage rebates. The extent and duration of the impact of these labor market, supply chain and transportation challenges are subject to see inflationary cost pressures, particularlynumerous external factors beyond our control, including broader macroeconomic conditions; size, location, and qualifications of the labor pool; behavioral changes; wage and price structures; adoption of new or revised regulations; future resurgence in our operating costspandemic conditions and capital expenditures.restrictions and geopolitical conflicts and responses. 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.operations diligently and safely. We are encouraged by our results for the first half of 2021in 2022 and remain focused on
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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 Quarter Financial Results
During the second quarter of 2021,2022, we delivered strong operatingrevenue, income from operations and operating cash flows as we continued to experience yield and volume recoveryimprovement in our landfill, commercial and industrial collection businesses and benefited fromat our landfills. We remain diligent in the acquisitionexecution of Advanced Disposal. Additionally,our disciplined pricing programs to effectively overcome inflationary
25
cost pressures, and we maintained focusremain focused on driving operating efficiencies and reducing discretionary spend. We continue to invest in our operating costspeople through market wage adjustments, investments in our digital platform and discretionary selling, generaltraining for new team members. We also continue to make investments in recycling automation technology and administrative expenses. Wecustomer service digitalization to enhance our operational efficiency and improve labor productivity for all lines of business. During the second quarter of 2022, we allocated $396$550 million of available cash to capital expenditures, both as a continuing investment in our traditional solid waste business and $492to support growth in our sustainability asset network. We also allocated $539 million to our shareholders through dividends and sharecommon stock repurchases.
Key elements of our financial results for the second quarter include:
● | Revenues of |
● | Operating expenses of |
● | Selling, general and administrative expenses were $487 million, or 9.7% of revenues, compared with $445 million, or 9.9% |
● | Income from operations was |
● | Net income attributable to Waste Management, Inc. was |
● | Net cash provided by operating activities was |
● | Free cash flow was |
29
Results of Operations
Operating Revenues
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 EasternEast and Western Canada Areas reducing the number of Areas we manage from 17 to 16.West Tiers. We also provide additional services that are not managed through our Solid Waste business, including operations managed by both our Strategic Business Solutions (“WMSBS”) and EnergySustainability and Environmental ServicesSolutions (“EES”SES”) businesses,
26
recycling brokerage services, landfill gas-to-energy services and certain other expanded service offerings and solutions. The mix of operating revenues from our major lines of business is reflected in the table below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||||
Commercial | | $ | 1,178 | | $ | 928 | | $ | 2,309 | | $ | 1,991 | | $ | 1,355 | | $ | 1,178 | | $ | 2,642 | | $ | 2,309 |
Industrial | |
| 942 | |
| 811 | |
| 1,778 | |
| 1,554 | ||||||||||||
Residential | |
| 794 | |
| 657 | |
| 1,576 | |
| 1,307 | |
| 832 | |
| 794 | |
| 1,637 | |
| 1,576 |
Industrial | |
| 811 | |
| 625 | |
| 1,554 | |
| 1,318 | ||||||||||||
Other collection | |
| 135 | |
| 115 | |
| 251 | |
| 227 | |
| 181 | |
| 135 | |
| 334 | |
| 251 |
Total collection | |
| 2,918 | |
| 2,325 | |
| 5,690 | |
| 4,843 | |
| 3,310 | |
| 2,918 | |
| 6,391 | |
| 5,690 |
Landfill | |
| 1,075 | |
| 874 | |
| 1,990 | |
| 1,761 | |
| 1,194 | |
| 1,075 | |
| 2,245 | |
| 1,990 |
Transfer | |
| 532 | |
| 439 | |
| 997 | |
| 880 | |
| 554 | |
| 532 | |
| 1,040 | |
| 997 |
Recycling | |
| 397 | |
| 275 | |
| 739 | |
| 529 | |
| 468 | |
| 397 | |
| 921 | |
| 739 |
Other (a) | |
| 513 | |
| 409 | |
| 990 | |
| 839 | |
| 596 | |
| 513 | |
| 1,171 | |
| 990 |
Intercompany (b) | |
| (959) | |
| (761) | |
| (1,818) | |
| (1,562) | |
| (1,095) | |
| (959) | |
| (2,080) | |
| (1,818) |
Total | | $ | 4,476 | | $ | 3,561 | | $ | 8,588 | | $ | 7,290 | | $ | 5,027 | | $ | 4,476 | | $ | 9,688 | | $ | 8,588 |
(a) | The “Other” line of business includes (i) certain services provided by our WMSBS business; (ii) our landfill |
(b) | Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included within this report. |
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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 |
| | | Period-to-Period Change for the |
| | Period-to-Period Change for the Three Months Ended June 30, 2022 vs. 2021 |
| | | Period-to-Period Change for the Six Months Ended June 30, 2022 vs. 2021 |
| ||||||||||||||||||||||||||||||||||
| | | | | 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 | | $ | 118 | | 3.7 | % | | | | | | | | $ | 211 | | 3.2 | % | | | | | | | | $ | 241 | | 6.2 | % | | | | | | | | $ | 442 | | 5.9 | % | | | | | | |
Recycling (c) | |
| 84 | | 32.9 | | |
| | | | | |
| 181 | | 37.4 | | |
| | | | | |
| 96 | | 25.5 | | |
| | | | | |
| 212 | | 30.2 | | |
| | | | |
Fuel surcharges and mandated fees | |
| 46 | | 44.3 | | |
| | | | | |
| 37 | | 15.4 | | |
| | | | | ||||||||||||||||||||||||
Fuel surcharges and other (d) | |
| 153 | | 70.0 | | |
| | | | | |
| 243 | | 58.9 | | |
| | | | | ||||||||||||||||||||||||
Total average yield | |
| | | | | | $ | 248 | | 7.0 | % | |
| | | | | | $ | 429 | | 5.9 | % | |
| | | | | | $ | 490 | | 10.9 | % | |
| | | | | | $ | 897 | | 10.4 | % |
Volume | |
| | | | | |
| 341 | | 9.6 | | |
| | | | | |
| 240 | | 3.3 | | |
| | | | | |
| 73 | | 1.6 | | |
| | | | | |
| 217 | | 2.5 | |
Internal revenue growth | | | | | | | | | 589 | | 16.6 | | | | | | | | | | 669 | | 9.2 | | | | | | | | | | 563 | | 12.5 | | | | | | | | | | 1,114 | | 12.9 | |
Acquisitions | | | | | | | | | 316 | | 8.9 | | | | | | | | | | 618 | | 8.5 | | | | | | | | | | 2 | | 0.1 | | | | | | | | | | 5 | | 0.1 | |
Divestitures | | | | | | | | | (11) | | (0.3) | | | | | | | | | | (21) | | (0.3) | | | | | | | | | | (6) | | (0.1) | | | | | | | | | | (11) | | (0.1) | |
Foreign currency translation | | | | | | | | | 21 | | 0.5 | | | | | | | | | | 32 | | 0.4 | | | | | | | | | | (8) | | (0.2) | | | | | | | | ��� | | (8) | | (0.1) | |
Total | | | | | | | | $ | 915 | | 25.7 | % | | | | | | | | $ | 1,298 | | 17.8 | % | | | | | | | | $ | 551 | | 12.3 | % | | | | | | | | $ | 1,100 | | 12.8 | % |
(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. |
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(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 |
(d) | Beginning in the fourth quarter of 2021, includes changes in our revenue attributable to our WM Renewable Energy business from yield, which is included in Fuel Surcharges and Other, and Volume. We have revised our prior year results to conform with the current year presentation. |
(e) | The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company. |
The following provides further details associated withabout our period-to-period change in revenues:
Average YieldYield-
Collection and Disposal Average Yield — This measure reflects the effect on our revenue from the pricing activities of our collection, transfer and landfill operations, exclusive of volume changes. Revenue growth from collection and disposal average yield includes not only base rate changes and environmental and service fee 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 | | Six Months Ended | | | Three Months Ended | | Six Months Ended | | ||||||||||||
| | June 30, 2021 vs. 2020 |
| June 30, 2021 vs. 2020 | | | June 30, 2022 vs. 2021 |
| June 30, 2022 vs. 2021 | | ||||||||||||
| | | | | 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 | | $ | 37 | | 4.2 | % | $ | 68 | | 3.6 | % | | $ | 91 | | 8.3 | % | $ | 175 | | 8.1 | % |
Industrial | |
| 35 | | 5.8 | |
| 57 | | 4.5 | | |
| 81 | | 10.6 | |
| 135 | | 9.2 | |
Residential | |
| 29 | | 4.7 | |
| 56 | | 4.5 | | |
| 40 | | 5.3 | |
| 78 | | 5.1 | |
Total collection | |
| 101 | | 4.6 | |
| 181 | | 4.0 | | |
| 212 | | 7.8 | |
| 388 | | 7.3 | |
Landfill | |
| 10 | | 1.7 | |
| 17 | | 1.5 | | |
| 19 | | 2.8 | |
| 36 | | 2.9 | |
Transfer | |
| 7 | | 2.9 | |
| 13 | | 2.8 | | |
| 10 | | 3.7 | |
| 18 | | 3.5 | |
Total collection and disposal | | $ | 118 | | 3.7 | % | $ | 211 | | 3.2 | % | | $ | 241 | | 6.2 | % | $ | 442 | | 5.9 | % |
Our overall strategic pricing efforts are focused on improvingrecovering inflationary cost increases we experience in our business by increasing our average unit rate as well as recovering any inflationary cost increases. This strategy has been most successfulrate. We continue to experience strong average yield growth in our collection line of business where we experienced average yield growth of 4.6%7.8% and 4.0%7.3% for the three and six months ended June 30, 2021, respectively. We are driving improvements in our residential line of business, aligning the price charged for services we provide to our customers with the costs to provide the services, which has increased our average yield 4.7% and 4.5% for the three and six months ended June 30, 2021,2022, respectively, as compared with the prior year periods.periods, illustrating our focus on our pricing efforts in this inflationary environment. We are also continuing to see solid growth in our landfill and transfer businessesbusiness with our municipal solid waste business experiencing 2.8%5.8% and 2.7%5.9% average yield growth for the three and six months ended June 30, 2021,2022, respectively, as compared with the prior year periods.
Recycling — Improved profitability in our recycling businessRecycling revenue increased $96 million and $212 million for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods, primarily from higher market prices for recycling commoditiescommodities. Strong demand for recycled materials strengthened through 2021, continuing into the first half of 2022, driven by e-commerce retailers and volume recovery from facilities where we temporarily suspended operations during the pandemic resultedmanufacturers committing to use more recycled content 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.their packaging. During the three and six months ended June 30, 2021,2022, average market prices for recycling commodities at the Company’s facilities were approximately 75%30% and 90%40% higher, respectively, as compared to the prior year periods. The year-over-year favorable trend moderated in the second quarter of 2022 as compared with the first quarter of 2022. We currently expect the year-over-year increasepricing comparison to continuebe slightly lower for the remainder of 2022 due to the strong pricing we experienced in the second half of 2021 aswhen we see strongsaw demand for recycled materials outpacing supply, driven by the 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 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.supply.
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Fuel Surcharges and Mandated FeesOther — These fees, which are predominantly generated byinclude (i) our fuel surcharge program,program; (ii) yield from our WM Renewable Energy business and (iii) other mandated fees, increased $46$153 million and $37$243 million for the three and six months ended June 30, 2021,2022, respectively, as compared with the prior year periods. TheseFuel surcharge revenues are based on and fluctuate in response to changes in the national average prices for diesel fuel, and also vary with changes in our volume-based revenue activity. Market prices for dieselRevenue from our fuel surcharge program increased approximately 30%$129 million and 15%$201 million for the three and six months ended June 30, 2021,2022, respectively, as compared with the prior year periods. Market prices for diesel fuel increased approximately 70% and 60% for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods. Revenue from yield growth in our WM Renewable Energy business increased $22 million and $38 million for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods. This increase was primarily driven by increases in the value for electricity, renewable natural gas and environmental credits. 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 six months ended June 30, 2021,2022, as compared with the prior year periods.
Volume
Our revenues from volumes (excluding volumes from acquisitions and divestitures) increased $341$73 million, or 9.6%1.6%, and $240$217 million, or 3.3%2.5%, for the three and six months ended June 30, 2021,2022, respectively, as compared with the prior year periods. Our collection and disposal business volumes grew 2.3% and 3.2% for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.
Over the last year,Recovery in our volumes from COVID-related impacts continued during the second quarter of 2022, although the pace has moderated somewhat, as volume recoveries accelerated in the prior year period. Special waste volumes at our landfills and our commercial collection business have been recoveringthe most significant drivers of volume growth during the first half of 2022, primarily due to an increase in event-driven projects and organic revenue growth from improvement in the sharp decline experienced in April 2020overall business environment. In addition, our WMSBS business volumes grew as a result of COVID-19. The pace of recovery in our volumes accelerated in the 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
32
were our industrial and commercial collection businesses and construction and demolition and special waste volumes at our landfills. As we exited the second quarter of 2021, volumes in each of these lines of business were eithercontinued focus on par with pre-pandemic levels or have now surpassed 2019 volumes. Volumes in our recycling business are also up primarily due to the re-opening of facilities where we temporarily suspended operations during the pandemic. We continue to be optimistic about our volume recovery in 2021 as the economy continues to rebound and states and local jurisdictions continue re-opening. However, uncertainty remains with respect to the pace of economic recovery, as well as the potentiala differentiated service model for resurgence in transmission of COVID-19 and 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 $618 million, or 8.5%, for the three and six months ended June 30, 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.national accounts customers.
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 | | | Six Months Ended | | | Three Months Ended | | | Six Months Ended | | ||||||||||||||||||||||||||||||||||||
| | June 30, | | | June 30, | | | June 30, | | | June 30, | | ||||||||||||||||||||||||||||||||||||
|
| 2021 | |
| 2020 |
|
| 2021 | |
| 2020 | |
| 2022 | |
| 2021 |
|
| 2022 | |
| 2021 | | ||||||||||||||||||||||||
Labor and related benefits | | $ | 791 |
| 17.7 | % | | $ | 636 |
| 17.9 | % | | $ | 1,537 |
| 17.9 | % | | $ | 1,325 |
| 18.2 | % | | $ | 869 |
| 17.3 | % | | $ | 791 |
| 17.7 | % | | $ | 1,683 |
| 17.4 | % | | $ | 1,537 |
| 17.9 | % |
Transfer and disposal costs | |
| 298 | | 6.7 | | |
| 267 | | 7.5 | | |
| 572 | | 6.7 | | |
| 545 | | 7.5 | | |
| 314 | | 6.3 | | |
| 298 | | 6.7 | | |
| 596 | | 6.1 | | |
| 572 | | 6.7 | |
Maintenance and repairs | |
| 395 | | 8.8 | | |
| 303 | | 8.5 | | |
| 769 | | 8.9 | | |
| 638 | | 8.8 | | |
| 454 | | 9.0 | | |
| 395 | | 8.8 | | |
| 876 | | 9.0 | | |
| 769 | | 8.9 | |
Subcontractor costs | |
| 446 | | 10.0 | | |
| 357 | | 10.0 | | |
| 837 | | 9.7 | | |
| 728 | | 10.0 | | |
| 503 | | 10.0 | | |
| 446 | | 10.0 | | |
| 960 | | 9.9 | | |
| 837 | | 9.7 | |
Cost of goods sold | |
| 211 | | 4.7 | | |
| 140 | | 3.9 | | |
| 392 | | 4.6 | | |
| 258 | | 3.5 | | |
| 268 | | 5.3 | | |
| 211 | | 4.7 | | |
| 531 | | 5.5 | | |
| 392 | | 4.6 | |
Fuel | |
| 95 | | 2.1 | | |
| 57 | | 1.6 | | |
| 181 | | 2.1 | | |
| 133 | | 1.8 | | |
| 172 | | 3.4 | | |
| 95 | | 2.1 | | |
| 306 | | 3.2 | | |
| 181 | | 2.1 | |
Disposal and franchise fees and taxes | |
| 177 | | 3.9 | | |
| 144 | | 4.0 | | |
| 333 | | 3.9 | | |
| 289 | | 4.0 | | |
| 190 | | 3.8 | | |
| 177 | | 3.9 | | |
| 357 | | 3.7 | | |
| 333 | | 3.9 | |
Landfill operating costs | |
| 107 | | 2.4 | | |
| 92 | | 2.6 | | |
| 203 | | 2.3 | | |
| 201 | | 2.8 | | |
| 107 | | 2.1 | | |
| 107 | | 2.4 | | |
| 203 | | 2.1 | | |
| 203 | | 2.3 | |
Risk management | |
| 81 | | 1.8 | | |
| 62 | | 1.7 | | |
| 154 | | 1.8 | | |
| 131 | | 1.8 | | |
| 85 | | 1.7 | | |
| 81 | | 1.8 | | |
| 180 | | 1.9 | | |
| 154 | | 1.8 | |
Other | |
| 135 | | 3.0 | | |
| 122 | | 3.5 | | |
| 272 | | 3.2 | | |
| 261 | | 3.5 | | |
| 180 | | 3.6 | | |
| 135 | | 3.0 | | |
| 353 | | 3.6 | | |
| 272 | | 3.2 | |
| | $ | 2,736 | | 61.1 | % | | $ | 2,180 | | 61.2 | % | | $ | 5,250 | | 61.1 | % | | $ | 4,509 | | 61.9 | % | | $ | 3,142 | | 62.5 | % | | $ | 2,736 | | 61.1 | % | | $ | 6,045 | | 62.4 | % | | $ | 5,250 | | 61.1 | % |
Our operating expenses for the three and six months ended June 30, 2021 increased primarily due to volume increases(i) commodity-driven business impacts, particularly from higher fuel prices and the acquisition of Advanced Disposal. During the second quarter of 2021, we began to seerecycling brokerage rebates; (ii) inflationary cost pressures as well asand (iii) labor cost pressure from frontline employee wage adjustments, increased hiring driving up training costs and higher overtime fromdue to driver shortages that increasedand volume growth. These impacts were partially offset by our operating costs. Although our costs increased, efforts to recover higher costs through price and the significant revenue increases in our high-margin businesses, which include our landfill and commercial and industrial collection businesses, resulted in a reduction of 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 ourcontinued focus on operating efficiency continuedand efforts to control costs as volumes grow and our disciplined integration of Advanced Disposal which historically has generated lower margins.costs.
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Significant items affecting the comparabilitycomparison of operating expenses for the reported periods include:
Labor and Related Benefits — The increase in labor and related benefits costs was largely driven by (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)(ii) intentional headcount growth as volume increases, particularly in our commercial and industrial collection businesses, which when combined with continued driver shortages and turnover in certain markets increased overtime; (iv)overtime and training hours and (iii) increases in health and welfare costsattributable to our intentional investment in delivering a leading benefits program for our employees and increases in medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020 and (v) higher incentive compensations costs.activity.
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Transfer and Disposal Costs — The increase in transfer and disposal costs was largely driven by additional(i) increased disposal costs as a result of our acquisition of Advanced Disposal, increased volume andfees at third-party disposal sites; (ii) inflationary cost increases, which includes higher fuel, from our third-party haulers.haulers and (iii) increased commercial and industrial collection volumes.
Maintenance and Repairs — The increase in maintenance and repairs costs was largely driven by (i) our acquisition of Advanced Disposal, including intentional investments in the fleet acquired to bring the trucks to WM standards;inflationary cost increases for parts, supplies and third-party services; (ii) additional fleet maintenance driven by commercial and industrial volume increases;supply chain constraints which have delayed deliveries of new trucks; (iii) labor cost increases for our technicians, including higher overtime; (iv) an increase in container repairs driven by volume increases in our commercial and industrial collection businesses and delays in normal-coursenormal course capital expenditures for steel containers due to both steel costs and supply chain constraints and (iv) inflationary cost increases for parts, supplies(v) commercial and third-party services.industrial collection volume increases.
Subcontractor Costs —The increase in subcontractor costs was largely driven by (i) the acquisition of Advanced Disposal;inflationary cost increases, particularly for fuel and labor costs from third-party haulers and (ii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling than our collection and disposal business and (iii) inflationary cost increases from third-party haulers.business.
Cost of Goods Sold — The increase in cost of goods sold was primarily driven by increasesthe approximate 30% and 40% increase in marketrecycling commodity prices for recycling commodities of approximately 75% and 90% during the three and six months ended June 30, 2021, respectively. Tons processed also increased from2022, respectively, as compared to the prior year primarily due to the re-opening of facilities where operations were temporarily suspended during the pandemic.periods.
Fuel — The increase in fuel costs was primarily due to (i) increases of approximately 30% and 15% in market diesel and natural gas fuel prices during the three and six months ended June 30, 2021,2022, respectively, as compared withto the prior year periods; (ii) volume increasesperiods. This increase is also due to the cessation of federal natural gas fuel tax credits received in our commercial and industrial collection businesses and (iii) the acquisition of Advanced Disposal.2021 that have yet to be extended into 2022.
Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes was primarily driven by higher franchise fees paid to certain municipalities where we operate and overall rate increases in our fees and taxes paid on our volumes.
Risk Management — Risk management costs increased for three and six months ended June 30, 2022 as compared with the prior year periods, was primarily driven by landfill volume increases and additional costs attributabledue to our acquisition of Advanced Disposal.
Landfill Operating Costs —inflation in premiums. The increase in landfill operating costs for the three and six months ended June 30, 20212022 was primarilyalso impacted by an increase in claims costs due to volume increases and the Advanced Disposal acquisition. These increases were partially offset by lower leachate management costs primarily due to the cessationunfavorable cost development on a limited population of certain transportation costs in our Tier 3 segment.
Additionally, the increase in landfill operating costs for the six months ended June 30, 2021 was partially offset by the impacts of changes in the measurement of our environmental remediation obligations and recovery assets in bothsevere cases during the first quarter of 2020 and 2021. Our measurement of these balances includes application of a risk-free discount rate, which is based on the rate for U.S. Treasury bonds. In the first quarter of 2021, there was an increase in the 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 acquisition of Advanced Disposal, and 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.2022.
Other — Other operating cost increases were primarily due to our acquisition of Advanced Disposal, partially offset by(i) inflationary cost pressures; (ii) a favorable litigation settlement in the second quarter of 20212021; (iii) higher equipment rental costs attributable, in part, to increased volumes and asset sales.supply chain constraints slowing normal course fleet and equipment orders and (iv) an increase in business travel in 2022.
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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 | | | Six Months Ended | | | Three Months Ended | | | Six Months Ended | | ||||||||||||||||||||||||||||||||||||
| | June 30, | | | June 30, | | | June 30, | | | June 30, | | ||||||||||||||||||||||||||||||||||||
|
| 2021 | |
| 2020 | |
| 2021 | |
| 2020 | |
| 2022 | |
| 2021 | |
| 2022 | |
| 2021 | | ||||||||||||||||||||||||
Labor and related benefits | | $ | 297 |
| 6.6 | % | | $ | 228 |
| 6.4 | % | | $ | 594 |
| 6.9 | % | | $ | 474 |
| 6.5 | % | | $ | 312 |
| 6.2 | % | | $ | 297 |
| 6.6 | % | | $ | 617 |
| 6.4 | % | | $ | 594 |
| 6.9 | % |
Professional fees | |
| 56 | | 1.2 | | |
| 54 | | 1.5 | | |
| 105 | | 1.2 | | |
| 114 | | 1.6 | | |
| 62 | | 1.2 | | |
| 56 | | 1.2 | | |
| 128 | | 1.3 | | |
| 105 | | 1.2 | |
Provision for bad debts | |
| 7 | | 0.2 | | |
| 22 | | 0.6 | | |
| 17 | | 0.2 | | |
| 36 | | 0.5 | | |
| 14 | | 0.3 | | |
| 7 | | 0.2 | | |
| 24 | | 0.2 | | |
| 17 | | 0.2 | |
Other | |
| 85 | | 1.9 | | |
| 73 | | 2.1 | | |
| 187 | | 2.2 | | |
| 178 | | 2.4 | | |
| 99 | | 2.0 | | |
| 85 | | 1.9 | | |
| 209 | | 2.2 | | |
| 187 | | 2.2 | |
| | $ | 445 | | 9.9 | % | | $ | 377 | | 10.6 | % | | $ | 903 | | 10.5 | % | | $ | 802 | | 11.0 | % | | $ | 487 | | 9.7 | % | | $ | 445 | | 9.9 | % | | $ | 978 | | 10.1 | % | | $ | 903 | | 10.5 | % |
Selling, general and administrative expenses have increased primarily due to (i) increased labor costs from higher incentive compensation costs;costs and merit increases; (ii) increased labor and support costs related to our acquisition of Advanced Disposal and (iii) strategic investments in our digital platform.platform and sustainability initiatives and related supporting technology and (iii) an increase in provision for bad debts. Although our costs increased, the significant revenue increases in our high-margin businesses, which include our landfill and commercial and industrial collection businesses, positioned us to reduce our overall selling, general and administrative expenses as a percentage of revenues when compared with the prior year periods.
Significant items affecting the comparison of our selling, general and administrative expenses betweenfor the reported periods include:
Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) higher incentive compensation costs; (ii) additional headcount in connection withannual merit increases for our acquisition of Advanced Disposal;employees; (iii) increases in health and welfare costs attributable to our intentional investment in delivering a leading benefits program for our employees and increases in medical care activity generally returningactivity. These increases are partially offset by a decline in contract labor costs related to pre-pandemic levels from the lower levels experienced during 2020; (iv) costs associated with ourintegration of Advanced Disposal Services, Inc. (“Advanced Disposal”).
Professional Fees — The increase in professional fees was primarily driven by the strategic investments in our digital platform and (v) annual merit increases for our employees.
Professional Fees — Professional fees increased primarily due to our strategic investments in our digital platform. For the six months ended June 30, 2021,sustainability initiatives. Partially offsetting these increases were partially offset by lower consulting, advisory and legal fees following the completion of theintegration costs related to our acquisition of Advanced Disposal in the fourth quarter of 2020.Disposal.
Provision for Bad Debts — The decreaseincrease in provision for bad debts wasis primarily duerelated to an overall improvement in customer account collections and decreased collection risk with certain customers.our increased revenue.
Other — The increase in other expenses was primarily driven by costs associated with the acquisition of Advanced Disposalan increase in technology infrastructure to support our strategic investments in our digital platform and increased digital costs. For the six months ended June 30, 2021, these increases were partially offset by reductionsan increase in telecommunications andbusiness travel and entertainment costs. in 2022.
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 | | | Six Months Ended | | | Three Months Ended | | | Six Months Ended | | ||||||||||||||||||||||||||||||||||||
| | June 30, | | | June 30, | | | June 30, | | | June 30, | | ||||||||||||||||||||||||||||||||||||
|
| 2021 | |
| 2020 |
|
| 2021 | |
| 2020 |
|
| 2022 | |
| 2021 |
|
| 2022 | |
| 2021 |
| ||||||||||||||||||||||||
Depreciation of tangible property and equipment | | $ | 279 |
| 6.3 | % | | $ | 242 |
| 6.8 | % | | $ | 558 |
| 6.5 | % | | $ | 482 |
| 6.6 | % | | $ | 289 |
| 5.7 | % | | $ | 279 |
| 6.3 | % | | $ | 572 |
| 5.9 | % | | $ | 558 |
| 6.5 | % |
Amortization of landfill airspace | |
| 184 | | 4.1 | | |
| 148 | | 4.1 | | |
| 341 | | 4.0 | | |
| 286 | | 3.9 | | |
| 188 | | 3.8 | | |
| 184 | | 4.1 | | |
| 355 | | 3.7 | | |
| 341 | | 4.0 | |
Amortization of intangible assets | |
| 37 | | 0.8 | | |
| 24 | | 0.7 | | |
| 73 | | 0.8 | | |
| 48 | | 0.7 | | |
| 31 | | 0.6 | | |
| 37 | | 0.8 | | |
| 63 | | 0.6 | | |
| 73 | | 0.8 | |
| | $ | 500 | | 11.2 | % | | $ | 414 | | 11.6 | % | | $ | 972 | | 11.3 | % | | $ | 816 | | 11.2 | % | | $ | 508 | | 10.1 | % | | $ | 500 | | 11.2 | % | | $ | 990 | | 10.2 | % | | $ | 972 | | 11.3 | % |
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The increase in depreciation of tangible property and equipment was primarily related to our acquisition of Advanced Disposal anddriven by investments in capital assets includingto service our fleetcustomers, such as heavy equipment and facilities.containers. The increase in amortization of landfill airspace was driven primarily by (i) landfill volume increases from the continued economic recovery; (ii) our acquisition of Advanced Disposal and (iii) changes in amortization rates driven by revisions in landfill estimates.estimates, which includes changes in the anticipated timing of capping, closure and post-closure activities. The increasedecrease in amortization of intangible assets iswas primarily driven by the reduction in amortization of acquired intangible assets related tofrom the acquisition of Advanced Disposal.
(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net
DuringFor the six months ended June 30, 2022, we recognized a $17 million charge in the first quarter in our Corporate and Other segment to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site, as discussed in Note 6 to the Condensed Consolidated Financial Statements.
For the six months ended June 30, 2021, we recognized 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 asset impairment charges primarily related to our WM Renewable Energy business within our Other segment. These chargessegment, which 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 2 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 2 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.
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.
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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 16, and 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 | | | | Six Months Ended | | |
| | Three Months Ended | | | | Six Months Ended | | |
| ||||||||||||||||||||||||||||
| | June 30, | | Period-to-Period | | June 30, | | Period-to-Period |
| | June 30, | | Period-to-Period | | June 30, | | Period-to-Period |
| ||||||||||||||||||||||||||||
| | 2021 |
| 2020 |
| Change | | 2021 |
| 2020 | | Change |
| | 2022 |
| 2021(c) |
| Change | | 2022 |
| 2021(c) | | Change |
| ||||||||||||||||||||
Solid Waste: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tier 1 | | $ | 350 | | $ | 270 | | $ | 80 |
| 29.6 | % | $ | 657 | | $ | 558 | | $ | 99 |
| 17.7 | % | |||||||||||||||||||||||
Tier 2 | |
| 331 | |
| 208 | |
| 123 |
| 59.1 | |
| 622 | |
| 477 | |
| 145 |
| 30.4 | | |||||||||||||||||||||||
Tier 3 | |
| 375 | |
| 244 | |
| 131 |
| 53.7 | |
| 695 | |
| 532 | |
| 163 |
| 30.6 | | |||||||||||||||||||||||
East Tier | | $ | 581 | | $ | 512 | | $ | 69 |
| 13.5 | % | $ | 1,112 | | $ | 965 | | $ | 147 |
| 15.2 | % | |||||||||||||||||||||||
West Tier | |
| 608 | |
| 553 | |
| 55 |
| 9.9 | |
| 1,157 | |
| 1,028 | |
| 129 |
| 12.5 | | |||||||||||||||||||||||
Solid Waste | |
| 1,056 | |
| 722 | |
| 334 |
| 46.3 | |
| 1,974 | |
| 1,567 | |
| 407 |
| 26.0 | | |
| 1,189 | |
| 1,065 | |
| 124 |
| 11.6 | |
| 2,269 | |
| 1,993 | |
| 276 |
| 13.8 | |
Other (a) | |
| 4 | |
| (10) | |
| 14 |
| * | |
| 22 | |
| (35) | |
| 57 |
| * | | |
| 18 | |
| 6 | |
| 12 |
| * | |
| 19 | |
| 26 | |
| (7) |
| * | |
Corporate and Other (b) | | | (269) | | | (185) | | | (84) | | 45.4 | | | (555) | | | (432) | | | (123) | | 28.5 | | | | (317) | | | (280) | | | (37) | | 13.2 | | | (630) | | | (578) | | | (52) | | 9.0 | |
Total | | $ | 791 | | $ | 527 | | $ | 264 |
| 50.1 | % | $ | 1,441 | | $ | 1,100 | | $ | 341 |
| 31.0 | % | | $ | 890 | | $ | 791 | | $ | 99 |
| 12.5 | % | $ | 1,658 | | $ | 1,441 | | $ | 217 |
| 15.1 | % |
Percentage of revenues |
| | 17.7 | % | | 14.8 | % | | | | | | | 16.8 | % | | 15.1 | % | | | | | |
| | 17.7 | % | | 17.7 | % | | | | | | | 17.1 | % | | 16.8 | % | | | | | |
*Percentage change does not provide a meaningful comparison.
(a) | “Other” includes (i) elements of our WMSBS |
(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, 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. |
(c) | In the fourth quarter of 2021, we discontinued certain allocations from our Corporate and Other segment to our Solid Waste operating segments and Other segment. Reclassifications have been made to our prior period information for comparability purposes. |
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The significant items affecting income from operations for our segments during the three and six months ended June 30, 2021,2022, as compared with the prior year periods, are summarized below:
● | Solid Waste — Income from operations in our Solid Waste business increased |
During the second quarter of 2020, income from operations 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 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.
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● | Corporate and Other — The |
Interest Expense, Net
Our interest expense, net was $93 million and $178 million for the three and six months ended June 30, 2022, respectively, compared to $98 million and $195 million for the three and six months ended June 30, 2021, respectively, compared to $119 million and $231 million for the three and six months ended June 30, 2020, respectively. The decreases aredecrease in the first half of 2022 is primarily due to certain refinancing activities, including (i) the redemption of $3.0 billion of senior notes in July 2020 and the issuance of $2.5 billion of senior notes in November 2020 at lower rates and (ii) the retirement of $1.3 billion of certain high-coupon senior notes and concurrent issuance of $950 million of lower coupon senior notes in May 2021 as discussed further below. The decreases were partially offset by decreases inand, to a lesser extent, the impacts that lower interest incomerates have had on the cost of certain of our tax-exempt debt primarily during the first quarter of 2022. In the second half of 2022, we expect that interest costs will increase compared to 2021 as a result of lower cashincremental debt issued in the second quarter of 2022 and cash equivalents balances in 2021.the effect of rising interest rates primarily on borrowings under our commercial paper program and $1.0 billion, two-year, U.S. term credit agreement (“Term Loan”).
Loss on Early Extinguishment of Debt
The loss on early extinguishment of debt during the three and six months ended June 30, 2022 resulting from the redemption of our $500 million 2.9% senior notes due September 2022 in advance of their maturity was immaterial.
In May 2021, WMWMI issued $950 million of senior notes, which are discussed further below in Summary of Cash and Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations. Concurrently, wenotes. We used the net proceeds from the newly issued senior notes of $942 million and available cash on hand to retire $1.3 billion of certain high-coupon senior notes.notes through a tender offer. The loss on early extinguishment of debt for the three and six months ended June 30, 2021 includes $220 million of charges related to thesethe tender offer, including cash paid of $211 million related toof premiums and other third-party costs and $9 million primarily related to unamortized discounts and debt issuance costs. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to these transactions.
Equity in Net Losses of Unconsolidated Entities
We recognized equity in net losses of unconsolidated entities of $11$17 million and $20$32 million forduring the three and six months ended June 30, 2021,2022, respectively, compared to $14$11 million and $40$20 million for the three months and six months ended June 30, 2020,2021, respectively. The losses for each period 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. During the three months ended March 31, 2020, the entity that held and managed our ownership interestinvestments which are discussed in 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 second quarter of 2021, we recognized an $8 million loss upon settlement of a reverse Treasury rate lock associated with the refinancing of certain senior notes as discussed above in Loss on Early Extinguishment of Debt.
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Income Tax Expense
Our income tax expense was $189 million and $346 million for the three and six months ended June 30, 2022, respectively, compared to $105 million and $229 million for the three and six months ended June 30, 2021, respectively, compared to $88 millionrespectively. Our effective income tax rate was 24.3% and $162 million23.9% for the three and six months ended June 30, 2020, respectively. Our effective income tax rate was2022, respectively, compared to 22.9% and 22.8% for the three and six months ended June 30, 2021, respectively, compared to 22.2% and 19.5% for the three and six months ended June 30, 2020, respectively.
33
The increase in our income tax expense and effective income tax rate when comparing the three and six months ended June 30, 2022 and 2021 with the prior year period was due to (i)primarily driven by an increase in pre-tax income in 2021; (ii)2022, resulting in a decrease in the benefits realized on tax audit settlements and (iii) lowerdecreased rate benefit from federal income 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 2020.
See Note 4 to the Condensed Consolidated Financial Statements for more information related to income 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.acquisitions, and funding of strategic sustainability growth investments. 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. 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 AccountsFunds and Debt Obligations
The following is a summary of our cash and cash equivalents, restricted trust and escrow accountsfunds and debt balances (in millions):
| | | | | | | | | | | | |
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
Cash and cash equivalents | | $ | 148 | | $ | 553 | | $ | 894 | | $ | 118 |
Restricted trust and escrow accounts: | |
|
| |
| | ||||||
Restricted funds: | |
|
| |
| | ||||||
Insurance reserves | | $ | 384 | | $ | 306 | | $ | 363 | | $ | 305 |
Final capping, closure, post-closure and environmental remediation funds | | | 117 | | | 114 | | | 114 | | | 118 |
Tax-exempt bond funds | | | 20 | | | — | ||||||
Other | |
| — | |
| 2 | |
| — | |
| 5 |
Total restricted trust and escrow accounts (a) | | $ | 521 | | $ | 422 | ||||||
Total restricted funds (a) | | $ | 477 | | $ | 428 | ||||||
Debt: | |
|
| |
|
| |
|
| |
|
|
Current portion | | $ | 361 | | $ | 551 | | $ | 231 | | $ | 708 |
Long-term portion | |
| 12,883 | |
| 13,259 | |
| 14,046 | |
| 12,697 |
Total debt | | $ | 13,244 | | $ | 13,810 | | $ | 14,277 | | $ | 13,405 |
(a) | As of June 30, |
Cash and cash equivalents — Cash and cash equivalents at June 30, 2022 include proceeds from borrowings under our Term Loan and from the May 2022 issuance of senior notes, which were partially offset by the redemption of our $500 million 2.9% senior notes due September 2022 in advance of their scheduled maturity, discussed further in Note 3 to the Condensed Consolidated Financial Statements.
Debt — As of June 30, 20212022, we had $2.9approximately $2.4 billion of debt maturing within the next 12 months, including (i) $1.5$1.0 billion of short-term borrowings under our commercial paper program;program (net of related discount on issuance); (ii) $1.2 billion$625 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturitiesmaturities; (iii) $500 million of 2.4% senior notes that mature in May 2023 and (iii) $212(iv) $226 million of other debt with scheduled maturities within the next 12 months, including $103$111 million of tax-exempt bonds. As of June 30, 2021,2022, we have classified $2.6$2.1 billion of debt maturing in the next 12 months as long-termlong term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity
39
under our $3.5 billion long-term U.S. and Canadian revolving credit facility (“$3.5 billion revolving credit facility”). The remaining $361$231 million of debt maturing in the next 12 months is classified as current obligations.
In May 2021, WM issued $950Additionally, as of June 30, 2022, we also had $54 million of senior notes consistingvariable-rate tax-exempt bonds with long-term scheduled maturities supported by letters of $475credit under our $3.5 billion revolving credit facility. The interest rates on our variable-rate tax-exempt bonds reset on a weekly basis through a remarketing process. All recent tax-exempt bond
34
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 classified the $54 million of 2.00% senior notes due June 1, 2029 and $475 millionvariable-rate tax-exempt bonds with maturities 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 classifiedmore than one year as loss on early extinguishment of debtlong-term in our Condensed Consolidated StatementBalance Sheet.
In May 2022, WMI issued $1.0 billion of Operations, and $154.15% senior notes due April 15, 2032, the net proceeds of which were $992 million. We used the net proceeds to redeem our $500 million of accrued interest.2.9% senior notes due September 2022 in advance of their scheduled maturity, to repay a portion of outstanding borrowings under our commercial paper program and for general corporate purposes.
In May 2022, we entered into a Term Loan to be used for general corporate purposes and as of June 30, 2022, we had $1.0 billion of outstanding borrowings. WM Holdings guarantees all of the obligations under the Term Loan.
Amendment and Extension of Revolving Credit Facility
In May 2022, we amended and restated our $3.5 billion U.S. and Canadian revolving credit facility extending the term through May 2027. The agreement includes a $1.0 billion accordion feature that may be used to increase total capacity in future periods, and we have the option to request up to two one-year extensions. Waste Management of Canada Corporation and WM Quebec Inc., each an indirect wholly-owned subsidiary of WMI, are borrowers under the $3.5 billion revolving credit facility, and the agreement permits borrowing in Canadian dollars up to the U.S. dollar equivalent of $375 million, with such borrowings to be repaid in Canadian dollars. WM Holdings, a wholly-owned subsidiary of WMI, guarantees all the obligations under the $3.5 billion revolving credit facility. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information.
Guarantor Financial Information
WM Holdings has fully and unconditionally guaranteed all of WM’sWMI’s senior indebtedness. WMWMI has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WM’sWMI’s other subsidiaries have guaranteed any of WM’sWMI’s or WM Holdings’ debt. In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WM(WMI and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WMWMI and WM Holdings on a combined basis after elimination of intercompany transactions between WMWMI and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):
| | | | | | | | | | | | |
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2022 |
| 2021 | ||||
Balance Sheet Information: | | | | | | | | | | | | |
Current assets |
| $ | 5 | | $ | 481 |
| $ | 822 | | $ | 6 |
Noncurrent assets | | | 14 | | | 14 | | | 15 | | | 13 |
Current liabilities | |
| 249 | |
| 446 | |
| 106 | |
| 590 |
Noncurrent liabilities: | | | | | | | | | | | | |
Advances due to affiliates | | | 17,782 | | | 16,505 | | | 19,623 | | | 18,599 |
Other noncurrent liabilities | |
| 10,837 | |
| 11,202 | |
| 12,014 | |
| 10,778 |
(a) | The amount reported as Advances due to affiliates as of December 31, 2021 was understated in our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequently corrected in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. |
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| | | |
|
| Six Months Ended | |
| | June 30, | |
Income Statement Information: | | | |
Revenue |
| $ | — |
Operating income | | | — |
Net loss | | |
|
Summary of Cash Flow Activity
The following is a summary of our cash flows for the six months ended June 30 (in millions):
| | | | | | | | | | | | |
|
| Six Months Ended |
| Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
| | 2021 |
| 2020 | | 2022 |
| 2021 | ||||
Net cash provided by operating activities | | $ | 2,163 | | $ | 1,621 | | $ | 2,305 | | $ | 2,163 |
Net cash used in investing activities | | $ | (708) | | $ | (918) | | $ | (1,100) | | $ | (708) |
Net cash used in financing activities | | $ | (1,810) | | $ | (1,575) | | $ | (407) | | $ | (1,810) |
Net Cash Provided by Operating Activities — Our operating cash flows increased by $542$142 million as compared with the prior year period, as a result of (i) an increase in earnings primarily attributable to our collection and disposal, recycling and recyclingWM Renewable Energy lines of business; (ii) favorable changesbusiness, as well as lower interest payments due to the timing of certain interest payments and refinancing activities in 2021 that reduced our working capital, net of effects of acquisitionsoverall interest rate, partially offset by higher income tax payments and divestitures; (iii) the acquisition of Advanced Disposal and (iv) lowerhigher annual incentive compensation payments in the current year. Our working capital was favorably impacted by the timing of cash payments for our capital expenditures and an improvement in our days sales outstanding. These favorable impacts were partially offset by (i) higher income tax payments in the current year
40
period; (ii) the timing of cash tax benefits received in 2020 associated with 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 Coronavirus Aid, Relief and Economic Security Act. period.
Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the six months ended June 30, 20212022 and 20202021 are summarized below:
● | Capital Expenditures — We used |
● | Other, Net |
36
Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the six months ended June 30, 20212022 and 20202021 are summarized below:
● | Debt Borrowings (Repayments) |
| | | | | | | | | | | | |
|
| 2021 | | 2020 |
| 2022 | | 2021 | ||||
Borrowings: |
|
|
| | |
|
|
|
| | |
|
Commercial paper (a) |
| $ | 640 | | $ | — | ||||||
Commercial paper |
| $ | 3,368 | | $ | 640 | ||||||
Term loan | | | 1,000 | | | — | ||||||
Senior notes |
| | 992 | | | 942 | ||||||
Tax-exempt bonds |
|
| — | |
| 125 | ||||||
|
| $ | 5,360 | | $ | 1,707 | ||||||
Repayments: |
|
|
| |
|
| ||||||
Commercial paper |
| $ | (4,141) | | $ | (954) | ||||||
Senior notes |
| | 942 | | | — |
| | (500) | | | (1,289) |
Tax-exempt bonds |
|
| 125 | |
| — |
|
| — | |
| (24) |
Other debt |
|
| — | |
| — |
|
| (42) | |
| (59) |
|
| $ | 1,707 | | $ | — |
| $ | (4,683) | | $ | (2,326) |
Repayments: |
|
|
| |
|
| ||||||
Commercial paper (a) |
| $ | (954) | | $ | — | ||||||
Senior notes |
| | (1,289) | | | (600) | ||||||
Tax-exempt bonds |
|
| (24) | |
| (52) | ||||||
Other debt |
|
| (59) | |
| (53) | ||||||
|
| $ | (2,326) | | $ | (705) | ||||||
Net cash repayments | | $ | (619) | | $ | (705) | ||||||
Net cash borrowings (repayments) | | $ | 677 | | $ | (619) |
Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to our debt borrowings and repayments.
● | Premiums and Other Paid on Early Extinguishment of Debt — During the six months ended June 30, 2021, we paid premiums and other third-party costs of $211 million to retire certain high-coupon senior notes. |
● | Common Stock Repurchase Program — During the six months ended June 30, 2022, we repurchased $524 million of our common stock, consisting of $500 million pursuant to two accelerated share repurchase (“ASR”) agreements and $24 million repurchased in open market transactions, of which $4 million was paid in July 2022. See Note 10 to the Condensed Consolidated Financial Statements for additional information. During the six months ended June 30, 2021, we repurchased $500 million of our common stock pursuant to two |
41
● | Cash Dividends — For the periods presented, all dividends have been declared by our Board of Directors. We paid cash dividends of $544 million and $489 million during the six months ended June 30, 2022 and 2021, respectively. The increase in dividend payments is primarily due to our quarterly per share dividend increasing from $0.575 in 2021 to $0.65 in 2022. |
We paid cash dividends of $489 million and $466 million during the six months ended June 30, 2021 and 2020, respectively. The increase in dividend payments is primarily due to our quarterly per share dividend increasing from $0.545 in 2020 to $0.575 in 2021 which was offset, in part, by a reduction in 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 of cash 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.
37
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 | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net cash provided by operating activities | | $ | 1,043 | | $ | 856 | | $ | 2,163 | | $ | 1,621 |
Capital expenditures | |
| (396) | |
| (436) | |
| (666) | |
| (895) |
Proceeds from divestitures of businesses and other assets, net of cash divested | |
| 2 | |
| 3 | |
| 17 | |
| 15 |
Free cash flow | | $ | 649 | | $ | 423 | | $ | 1,514 | | $ | 741 |
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net cash provided by operating activities | | $ | 1,047 | | $ | 1,043 | | $ | 2,305 | | $ | 2,163 |
Capital expenditures to support the business | | | (485) | | | (387) | | | (856) | | | (646) |
Capital expenditures - sustainability growth investments (a) | | | (65) | | | (9) | | | (112) | | | (20) |
Total capital expenditures | |
| (550) | |
| (396) | |
| (968) | |
| (666) |
Proceeds from divestitures of businesses and other assets, net of cash divested | |
| 6 | |
| 2 | |
| 11 | |
| 17 |
Free cash flow | | $ | 503 | | $ | 649 | | $ | 1,348 | | $ | 1,514 |
(a) | These growth investments are intended to further our sustainability leadership position by increasing recycling volumes and growing renewable natural gas generation. We expect they will deliver circular solutions for our customers and drive environmental value to the communities we serve. |
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, intangible asset impairments and 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, 2020.2021. 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 six months ended June 30, 2021, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.
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Seasonal Trends
Our operating revenues tend to be somewhat higher in summer months, primarily due to 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.
Service disruptions caused by severe storms, extended periods of inclement weather or climate events can significantly impactaffect the operating results of the Areasgeographic 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 Areasgeographic areas affected as a result of the waste volumes generated by these events. While weather-related and other event-driven special projects can boost revenues through additional work for a limited time, as a result ofdue to significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.
Inflation
WhileAccelerated and pronounced economic pressures, particularly related to inflationary increases in costs can affectcost pressures on labor and the goods and services we rely upon to deliver service to our income from operations margins, we believe that inflation generally has not had, and in the near future is not expectedcustomers, have continued 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, ansignificant impact on our accountingcost structure and capital expenditures in the first half of 2022. We are taking proactive steps to recover and/or mitigate inflationary cost pressures through our overall strategic pricing efforts and by managing our costs through efficiency, labor productivity and investments in technology to automate certain aspects of our business. A significant portion of our
38
revenue is tied to a price escalation index with a lookback provision, which has resulted in a timing lag in our ability to recover increased costs under these contracts during this period of rapid inflation. Separately, for landfillmany of our customers we provide services under multi-year contracts that can restrict our ability to increase prices and environmental remediation liabilities.the timing of such increases. As we entered 2022, many of these contract lookback provisions began to capture the inflationary cost increases experienced in the second half of 2021 in the price escalation calculation; however, due to continued inflation as well as the relatively low inflationary cost environment of the first half of 2021, such timing lag persists.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information about market risks as of June 30, 20212022 does not materially differ materially from that discussed under Item 7A3 in our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 2020.2022.
Item 4. Controls and Procedures.
Effectiveness of Disclosure 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 (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) 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 June 30, 20212022 (the end of the period covered by this Quarterly Report on Form 10-Q). at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
Management,In the first quarter of 2022, we implemented a new general ledger accounting system and complementary finance enterprise resource planning system. These new system implementations were achieved after a multi-year review of existing accounting and reporting processes and the design and configuration of system-enabled enhancements to such processes. The change in our general ledger and finance enterprise resource planning systems was subject to thorough testing and review by internal and external parties both before and after the implementation.
While these systems implementations are intended to enhance our framework for internal control over financial reporting, management, together with our CEO and CFO, evaluatedhas determined that the changes in our internal controlcontrols over financial reporting during the quarter ended June 30, 2021. We determined that there were no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that2022 have materially affected, ornot been material and are not reasonably likely to materially affect our internal controlcontrols over financial reporting.
43
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, 2020.2021.
39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes common stock repurchases made during the second quarter of 20212022 (shares in millions):
Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Total Number of | | | |
| | | | | | | Total Number of | | | |
|
| | Total | | | | | Shares Purchased as | | Approximate Maximum |
| | Total | | | | | Shares Purchased as | | Approximate Maximum |
| ||
| | Number of | | Average | | Part of Publicly | | Dollar Value of Shares that |
| | Number of | | Average | | Part of Publicly | | Dollar Value of Shares that |
| ||||
| | Shares | | Price Paid | | Announced Plans or | | May Yet be Purchased Under |
| | Shares | | Price Paid | | Announced Plans or | | May Yet be Purchased Under |
| ||||
Period |
| Purchased |
| per Share(a) |
| Programs |
| the Plans or Programs |
|
| Purchased |
| per Share |
| Programs |
| the Plans or Programs |
| ||||
April 1 — 30 |
| — | | $ | — | | — | | $ | 1.1 billion | |
| 0.3 | | $ | 153.14 | | 0.3 | | $ | 1.0 billion | |
May 1 — 31 |
| 1.6 | | $ | 139.60 | | 1.6 | | $ | 850 million | |
| 1.4 | | $ | 161.55 | | 1.4 | | $ | 1.0 billion | |
June 1 — 30 |
| — | | $ | — | | — | | $ | 850 million | |
| 0.4 | | $ | 151.35 | | 0.4 | | $ | 976 million | (b) |
Total |
| 1.6 | | $ | 139.60 |
| 1.6 | | | | |
| 2.1 | | $ | 158.41 |
| 2.1 | | | | |
(a) |
In February 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 $146.43. The ASR agreement completed in April 2022, at which time we received 0.3 million additional shares based on a final weighted average price of $153.14.
In May 2022, under a new ASR agreement, we delivered $250 million cash and received 1.81.4 million shares based on a stockweighted average price of $110.56.$161.55. The ASR agreement completed in the second quarter of 2021, at which timeJune 2022 and we received 0.2 million additional shares based on a final weighted average price of $126.83.
$154.73. In May 2021, we entered into anJune 2022, after the completion of the ASR agreement, to repurchase $250we repurchased 0.2 million shares of our common stock. At the beginningstock in open market transactions in compliance with Rule 10b5-1 and Rule 10b-18 of the repurchase period, we delivered $250Exchange Act for $24 million, cash and received 1.4 million shares based oninclusive of per-share commissions, at 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-weightedweighted average price of our stock, less a discount, during the term$146.74, of the agreement. Purchases under the ASR agreement are expected to be completedwhich $4 million was paid in July 2021.2022.
As of June 30, 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.
44
(b) | As of June 30, 2022, the Company has authorization for $976 million of future share repurchases. 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.
40
Item 6. Exhibits.
| | |
Exhibit No. |
| Description |
4.1* | | |
| | |
4.2* |
| |
|
|
|
| | |
| | |
| | |
| | |
10.2 | | |
| | |
10.3* | | |
| | |
22.1* | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1** | | |
| | |
32.2** | | |
| | |
95* | | |
| | |
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.
4541
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: July 27, | | |
| | |
4642