What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-26 compared with 2021-10-26 · 221 added, 341 removed, 182 unchanged (76% of the section changed)

9 unchanged sentences

These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to failure to implement our optimization, growth, and cost savings initiatives and overall business strategy;

failure to identify acquisition targets and negotiate attractive terms;

failure to consummate or integrate acquisitions;

failure to obtain the results anticipated from acquisitions;

failure to successfully integrate the acquisition of Advanced Disposal Services, Inc.

(“Advanced Disposal”), realize anticipated synergies or obtain other results anticipated from such acquisition;

failure to identify acquisition targets, consummate and integrate acquisitions;

failure to obtain the results anticipated from acquisitions, including continuing to realize the strategic benefits and cost synergies from our acquisition of Advanced Disposal Services, Inc.

(“Advanced Disposal”);

environmental and other regulations, including developments related to emerging contaminants, gas emissions and renewable fuel;

2 unchanged sentences

failure to attract, hire and retain key team members and a high quality workforce;

labor disruptions and workforce-related regulations;

changes in wage and labor related regulations;

significant storms and destructive climate events;

public health risk and other impacts of COVID-19 or similar pandemic conditions, including increased costs, social and commercial disruption and service reductions;

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 transportation constraints and inflationary cost pressure;

2 unchanged sentences

commodity price fluctuations;

impacts from Russia’s recent 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;

5 unchanged sentences

failure to develop and protect new technology;

failure of technology to perform as expected, including implementation of a new enterprise resource planning system;

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, as updated by Part II, Item 1A.

Risk Factors , included in this quarterly report on Form 10-Q for the quarter ended September 30, 2021.

The Company continues to be optimistic about volume recovery and overall economic recovery from the impacts of the COVID-19 pandemic.

However, uncertainty remains with respect to various factors that influence the pace of economic recovery, including workforce regulation and the potential for future 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.

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.

1 unchanged sentence

We partner with our residential, commercial, industrial, and municipal customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy.

We own or operate the largest network of landfills in the U.S.

We own or operate the largest network of landfills throughout the U.S.

In order to make disposal more practical for larger urban markets, where the distance to landfills is typically farther, we manage transfer stations that consolidate, compact and transport waste efficiently and economically.

We also use waste to create energy, recovering the gas produced naturally as waste decomposes in landfills and using the gas in generators to make electricity or natural gas.

We are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S.

that produce renewable natural gas, which is a significant source of fuel for our 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 provide 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 2021 Sustainability Report, which details our people-first commitment to help make the communities in which we live and work safe, resilient and sustainable.

The information in this report can be found at https://sustainability.wm.com but does not constitute a part of, and is not incorporated by reference into this Quarterly Report on Form 10-Q.

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.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we published our 2021 Sustainability Report, which details our people-first commitment to help make the communities in which we live and work

safe, resilient, and sustainable.

The information in this report can be found at https://sustainability.wm.com but 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.

1 unchanged sentence

Revenues from our landfill operations consist of tipping fees, which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities.

Fees charged at transfer stations are generally based on the weight or volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site.

Fees charged at transfer stations are generally based on the weight or volume of waste deposited, considering our cost of loading, transporting, and disposing of the solid waste at a disposal site.

Recycling revenues generally consist of tipping fees and the sale of recycling commodities to third parties.

The fees we charge for our services generally include our environmental fee, fuel surcharge and regulatory recovery fee which are intended to pass through to customers direct and indirect costs incurred.

The fees we charge for our services generally include our environmental, fuel surcharge and regulatory recovery fees which are intended to pass through to customers direct and indirect costs incurred.

We also provide additional services that are not managed through our Solid Waste business, described under Results of Operations below.

Acquisition of Advanced Disposal

On October 30, 2020, we completed our acquisition of all outstanding shares of Advanced Disposal for $30.30 per share in cash, pursuant to an Agreement and Plan of Merger dated April 14, 2019, as amended on June 24, 2020.

Total enterprise value of the acquisition was $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt.

This acquisition grows our footprint and allows us to provide differentiated, sustainable waste management and recycling services to approximately three million new commercial, industrial and residential customers primarily located in the Eastern half of the U.S.

The acquisition was funded using a $3.0 billion, 364-day, U.S.

revolving credit facility and our commercial paper program.

In November 2020, we issued $2.5 billion of senior notes and used a portion of the proceeds to repay all outstanding borrowings under the $3.0 billion, 364-day, U.S.

revolver and terminated the facility.

As a result of the acquisition we recorded $4.1 billion of net assets including $2.5 billion of goodwill as of December 31, 2020.

Post-closing adjustments to our preliminary purchase price allocation have not been material.

See Note 8 to the Condensed Consolidated Financial Statements for more information.

During 2021, we have 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, and continued into the third quarter of 2021 with minimal impact from the resurgence in transmission of COVID-19 as communities and businesses remained open.

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 completed the third 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.

We continue to be optimistic about our volume recovery and overall economic recovery from the impacts of the COVID-19 pandemic.

However, uncertainty remains with respect to various factors that influence the pace of

economic recovery, including workforce regulation and the potential for future 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 in the future.

Our fundamental strategy has not changed;

1 unchanged sentence

As North America’s leading provider of comprehensive waste management environmental services, sustainability and environmental stewardship is embedded in all that we do.

We have enabled a people-first, technology-led focus to drive our mission, that we are Always Working for a Sustainable Tomorrow.

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.

2 unchanged sentences

Simultaneously, we believe the combination of cost control, enhancements to our digital platform, process improvement and operational efficiency will deliver on the Company’s strategy of continuous improvement and yield an attractive total cost structure and enhanced service quality.

While we will continue to evaluate emerging diversion technologies that may generate additional value and related market dynamics, we are improving existing diversion technologies, such as our recycling operations.

While we continue to improve 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.

Business Environment

5 unchanged sentences

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 environmental services provider in North America, we have a responsibility to take big, bold steps that catalyze positive change – change that impacts our Company and beyond.

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 around eight of the United Nations Sustainable Development Goals.

Despite some industry consolidation in recent years, we encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, and to a much lesser extent, the nature of service offerings, particularly in the residential line of business.

As the leading waste management environmental services provider in 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.

We encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, and to a much lesser extent, the nature of service 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, can and have caused customers to reduce their service needs.

Such negative economic conditions, in addition to competitor actions, can and have made it more challenging to implement our pricing strategy and negotiate, renew or expand service contracts with acceptable margins.

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 impact our strategy to negotiate, renew, or expand service contracts and grow our business.

We also encounter competition for acquisitions and growth opportunities.

2 unchanged sentences

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.

We must dynamically manage our cost structure in response to volume 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.

We must dynamically manage our cost structure in response to volume changes and cost inflation.

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 designed to seamlessly and digitally connect all the Company’s functions required to service our customers in order to provide the best experience and service.

Additionally, we continue to make meaningful progress on the implementation of our new enterprise resource planning system.

Certain macroeconomic pressures and market disruption, driven in part by the COVID-19 pandemic, have intensified during the third quarter of 2021.

The constrained labor market has resulted in increased cost and operational challenges servicing customers.

The COVID-19 pandemic and the constrained labor market have also contributed to significant global supply chain disruption and inflationary pressure for the goods and services we purchase.

Enhancements made through this initiative are intended to seamlessly and digitally connect all the Company’s functions required to service our customers in order to provide the best experience and service.

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.

Additionally, in early 2022, we implemented our new enterprise resource planning system which will contribute to operational and service excellence by empowering our people through a modern, simplified and connected finance and accounting platform.

Certain macroeconomic pressures and market disruption, driven in part by the COVID-19 pandemic and other external events and conditions, intensified during the second half of 2021 and have continued through the first quarter 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 purchase, 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.

We are currently experiencing margin pressures from rising commodities prices, particularly in our recycling brokerage services, and are being impacted by labor cost pressures resulting from limitations on labor availability, including increased wages, increased overtime and training hours driven by frontline employee turnover and increased volume.

Additionally, we are currently experiencing margin pressures from commodity-driven business impacts, particularly from recycling brokerage rebates and higher fuel prices.

The extent and duration of the impact of these labor market, supply chain and transportation challenges are subject to numerous 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 pandemic conditions and 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.

We are encouraged by our results for the first nine months of 2021 and remain focused on delivering outstanding customer service, managing our variable costs with changing volumes and investing in technology that will enhance our customers’ experience and reduce our cost to serve.

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 execute our daily operations diligently and safely.

We are encouraged by our results in 2022 and remain focused on delivering outstanding customer service, managing our variable costs with changing volumes and investing in technology that will enhance our customers’ experience and reduce our cost to serve.

Current Quarter Financial Results

During the third quarter of 2021, we delivered strong revenue and income from operations as we continued to experience volume recovery in our landfill, commercial and industrial collection businesses and benefited from the acquisition of Advanced Disposal.

Additionally, our income from operations was impacted by inflationary cost pressures and commodity-driven business impacts, particularly in our recycling brokerage services.

We experienced strong cash flows during the quarter, allocating $741 million to our shareholders through dividends and share repurchases and $464 million of available cash to capital expenditures.

Key elements of our financial results for the third quarter include:

During the first quarter of 2022, we delivered strong revenue and income from operations as we continued to experience higher yield and volume recovery at our landfills and in our commercial collection business.

However, our first quarter of 2022 income from operations was impacted by constraints on labor availability and inflationary cost pressures.

We continue to invest in our people through market wage adjustments, investments in our digital platform and training for new team members.

In addition, we are focused on executing on our disciplined pricing programs in the face of these additional labor cost and inflationary pressures.

We also made significant investments in recycling automation technology and customer service digitalization to further support our continued focus on optimizing operational efficiency as well as achieving improved labor productivity for all lines of business.

During the first quarter of 2022, we allocated $418 million of available cash to capital expenditures and $525 million to our shareholders through dividends and common stock repurchases.

Key elements of our financial results for the first quarter include:

● Revenues of $4,661 million, compared with $4,112 million in the prior year period, an increase of $549 million, or 13.4%.

The increase is primarily attributable to (i) the acquisition of Advanced Disposal;

(ii) record-high increases in the market prices for recycling commodities we sell;

(iii) strong volume growth and (iv) higher yield in our collection and disposal lines of business;

The increase is primarily attributable to (i) higher yield in our collection and disposal lines of business;

(ii) strong volume growth and (iii) increases in the market prices for recycling commodities we sell;

● Operating expenses of $2,903 million, or 62.3% of revenues, compared with $2,514 million, or 61.1% of revenues, in the prior year period.

The $574 million increase is primarily attributable to (i) increased volumes from the acquisition of Advanced Disposal;

(ii) volume recovery from the pandemic;

(iii) labor inflation – we have experienced 9% wage inflation during the period and (iv) supply chain induced inflation.

Additionally, we saw increases in our operating expense as a percentage of revenue from commodity-driven business impacts, particularly in our recycling brokerage services;

● Selling, general and administrative expenses of $469 million, or 10.1% of revenues, compared with $416 million, or 10.8% of revenues, in the prior year period.

The $53 million increase is primarily attributable to (i) increased labor, support and integration costs from our acquisition of Advanced Disposal;

(ii) higher incentive compensation costs;

(iii) strategic investments in our digital platform and (iv) an increase in our provision for bad debts;

The $389 million increase is primarily attributable to (i) commodity-driven business impacts, particularly from recycling brokerage rebates and higher fuel prices, which also impacted our operating expense as a percentage of revenue;

(ii) inflationary cost pressures;

(iii) labor cost pressure from frontline employee wage adjustments, increased hiring driving up training costs and higher overtime due to driver shortages and volume growth;

(iv) volume growth, particularly for our commercial collection business;

and (v) higher risk management costs;

● Selling, general and administrative expenses were $491 million, or 10.5% of revenues, compared with $458 million, or 11.1% of revenues, in the prior year period.

The $33 million increase is primarily attributable to strategic investments in our digital platform and sustainability initiatives and increased labor costs primarily due to merit increases;

● Income from operations was $768 million, or 16.5% of revenues, compared with $650 million, or 15.8% of revenues, in the prior year period.

The improved earnings in the current year are driven by (i) strong operating results in our collection and disposal business;

(ii) improved profitability in our recycling business and (iii) a pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations.

The increase in income from operations was partially offset by (i) labor cost pressure from

frontline employee wage adjustments, increased turnover driving up training costs and accelerated overtime due to driver shortages and volume growth;

(ii) inflationary cost pressures and (iii) an amortization charge due to management’s decision to close a landfill earlier than expected.

Additionally, our commodity-driven business impacts pressured our percentage of revenues, particularly in our recycling brokerage services.

During the current year period, the positive earnings contributions from Advanced Disposal were offset by elevated depreciation and amortization of acquired assets;

The improved earnings in the current quarter are driven by strong operating results in our collection and disposal business and improved profitability in our recycling business.

The increase in income from operations was partially offset by (i) inflationary cost pressures;

(ii) labor cost pressure from frontline employee wage adjustments, increased hiring driving up training costs and higher overtime due to driver shortages and volume growth and (iii) strategic investments in our digital platform and sustainability initiatives;

● Net income attributable to Waste Management, Inc.

was $513 million, or $1.23 per diluted share, compared with $421 million, or $0.99 per diluted share, in the prior year period.

The increase in income from operations discussed above, in addition to a prior year period loss on early extinguishment of debt and lower interest expense in the current year period, drove an increase in net income for the period;

● Net cash provided by operating activities was $1,184 million compared with $1,029 million in the prior year period, driven by (i) an increase in earnings;

(ii) lower interest payments in the current quarter and (iii) system and process improvements that contributed to a significant improvement in our days-to-pay metrics.

This increase was partially offset by unfavorable year-over-year comparisons attributable to decisions made in the third quarter of 2020 to temporarily defer the payment of payroll taxes and estimated income taxes;

● Free cash flow was $773 million compared with $691 million in the prior year period primarily driven by the increase in net cash provided by operating activities discussed above and higher proceeds from divestitures of businesses.

These increases were partially offset by higher capital spending, as the Company proactively managed costs during the pandemic in 2020.

The increase in income from operations discussed above, in addition to lower interest expense, drove an increase in net income.

The year-over-year increase in net income was impacted by an increase in income tax expense;

● Net cash provided by operating activities was $1,258 million compared with $1,120 million in the prior year period, with the increase related to (i) the increase in earnings attributable to our collection and disposal and recycling lines of business and (ii) lower interest payments due to the timing of certain interest payments and refinancing activities in 2021 that reduced our overall interest rate;

● Free cash flow was $845 million compared with $865 million in the prior year period.

The decrease in free cash flow is primarily attributable to an increase in capital spending, primarily driven by timing differences in our fixed asset purchases, as well as our intentional investment in sustainability and growth in recycling and renewable energy projects, partially offset by an increase in net cash provided by operating activities, as discussed above.

Free cash flow is a non-GAAP measure of liquidity.

2 unchanged sentences

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 Eastern and Western Canada Areas reducing the number of Areas we manage from 17 to 16.

We also provide additional services that are not managed through our Solid Waste business, including our Strategic Business Solutions (“WMSBS”) and Energy and Environmental Services (“EES”) businesses, 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

Nine Months Ended

September 30,

We evaluate, oversee and manage the financial performance of our Solid Waste business subsidiaries through our East and West Tiers.

We also provide additional services that are not managed through our Solid Waste business, including both our Strategic Business Solutions (“WMSBS”) and Energy and Environmental Services (“EES”) businesses, 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 for the three months ended March 31 are as follows (in millions):

Other collection

2 unchanged sentences

(a) The “Other” line of business includes (i) certain services provided by our WMSBS business;

(ii) our landfill gas-to-energy operations;

(ii) our landfill gas-to-energy operations managed by our WM Renewable Energy business;

(iii) certain services within our EES business, including our construction and remediation services and our services associated with the disposal of fly ash and (iv) certain other expanded service offerings and solutions.

In addition, our “Other” line of business reflects the results of non-operating entities that provide financial

assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

In addition, our “Other” line of business reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

Revenue attributable to collection, landfill, transfer and recycling services provided by our “Other” businesses has been reflected as a component of the relevant line of business for purposes of presentation in this table.

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

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

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

Period-to-Period Change for the

Three Months Ended

September 30, 2021 vs.

Period-to-Period Change for the

Nine Months Ended

September 30, 2021 vs.

March 31, 2022 vs.

Collection and disposal

Recycling (c)

Fuel surcharges and mandated fees

Total average yield (d)

Fuel surcharges and other (d)

Total average yield (e)

Internal revenue growth

2 unchanged sentences

(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.

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

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

(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 about our period-to-period change in revenues:

Average Yield

4 unchanged sentences

Period-to-Period Change for the

Three Months Ended

Nine Months Ended

September 30, 2021 vs.

March 31, 2022 vs.

Total collection

Total collection and disposal

Our overall strategic pricing efforts are focused on improving our average unit rate as well as recovering any inflationary cost increases.

We experienced strong average yield growth in our collection line of business of 4.4% and 4.1% for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods.

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 5.0% and 4.7% for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods.

We are also continuing to see growth in our landfill and transfer businesses with our municipal solid waste business experiencing 3.5% and 3.0% average yield growth for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods.

Recycling — Recycling revenue increased $180 million and $361 million for the three months and nine months ended September 30, 2021, respectively, as compared with the prior year periods primarily from higher market prices for recycling commodities.

During the three and nine months ended September 30, 2021, average market prices for recycling commodities at the Company’s facilities were approximately 160% and 115% higher, respectively, as compared to the prior year periods.

We currently expect the year-over-year increase to continue for the remainder of 2021 as we see strong 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.

Fuel Surcharges and Mandated Fees — These fees, which are predominantly generated by our fuel surcharge program, increased $51 million and $88 million for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods.

These revenues are based on and fluctuate in response to changes in the national average prices for diesel fuel, and also vary with changes in our volume-based revenue activity.

Market prices for diesel fuel increased approximately 35% and 20% for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods.

The mandated fees are primarily related to fees and taxes assessed by various state, county and municipal government agencies at our landfills and transfer stations.

These amounts have not significantly impacted the change in revenue for the three and nine months ended September 30, 2021, as compared with the prior year periods.

Our revenues from volumes (excluding volumes from acquisitions and divestitures) increased $144 million, or 3.8%, and $384 million, or 3.5%, for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods.

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, and continued into the third

quarter of 2021 with minimal impact from the resurgence in transmission of COVID-19 as communities and businesses remained open.

As we completed the third 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.

Additionally, for the three and nine months ended September 30, 2021, volumes in our recycling business are also up partially due to the re-opening of facilities where we temporarily suspended operations in the second quarter of 2020 during the pandemic.

We continue to be optimistic about volume recovery and overall economic recovery from the impacts of the COVID-19 pandemic.

Such conditions could adversely impact our volumes in the future.

Revenues increased $311 million, or 8.0%, and $929 million, or 8.3%, for the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods, primarily due to our acquisition of Advanced Disposal and was principally in our collection and disposal lines of business.

Our overall strategic pricing efforts are focused on recovering inflationary cost increases we experience in our business by increasing our average unit rate.

We experienced strong average yield growth in our collection line of business of 6.7% for the first quarter of 2022 showing our focus on our pricing efforts in this inflationary environment.

We are also continuing to see growth in our landfill and transfer businesses with our municipal solid waste business experiencing 5.1% average yield growth for the first quarter of 2022.

Recycling — Increases in the market prices for recycling commodities resulted in revenue growth of $116 million for the first quarter of 2022, as compared with the prior year period.

During the first quarter of 2022, average market prices for recycling commodities at the Company’s facilities were 60% higher compared to the prior year period.

Strong demand for recycled materials strengthened through 2021, continuing into 2022, driven by the strength in e-commerce and manufacturers committing to use more recycled content in their packaging.

Fuel Surcharges and Other — These fees, which include (i) our fuel surcharge program;

(ii) yield from our WM Renewable Energy business and (iii) other mandated fees, increased $90 million for the first quarter of 2022, as compared with the prior year period.

Fuel 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 diesel fuel were almost 50% higher for the first quarter of 2022, as compared with the prior year period, as diesel fuel prices have continued to meaningfully increase.

Revenue from our WM Renewable Energy business increased for the first quarter of 2022, as compared with the prior year period, primarily driven by the 55% increase in value for renewable fuel standard credits.

The other 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 first quarter of 2022, as compared with the prior year period.

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $148 million, or 3.6%, for the first quarter of 2022, as compared with the prior year period.

Our collection and disposal business volumes grew 4.2% in the first quarter of 2022, as compared with the prior year period, but were partially offset by lower volumes in our WM Renewable Energy and recycling businesses.

The pace of recovery in our volumes continued during the first quarter of 2022 following the growth we saw in 2021.

Volume at our landfills and our commercial collection business were the most significant drivers of volume growth primarily due to the negative impact of COVID-19 in the prior year as well as the economic recovery in the current business environment.

In addition, our WMSBS business volume grew as a result of our continued focus on a differentiated service model for 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

Nine Months Ended

September 30,

The following table summarizes the major components of our operating expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

Labor and related benefits

6 unchanged sentences

Risk management

Our operating expenses for the three and nine months ended September 30, 2021 increased primarily due to (i) increased volumes from the acquisition of Advanced Disposal;

(ii) volume recovery from the pandemic;

(iii) labor cost pressure from frontline employee wage adjustments, increased turnover driving up training costs and accelerated overtime due to driver shortages and volume growth and (iv) inflationary cost pressures.

Additionally, during the third quarter of 2021, we saw significant increases in operating costs as a percentage of revenue primarily due to commodity-driven business impacts, particularly in our recycling brokerage services.

For the three and nine months ended September 30, 2021, these impacts were partially offset by our continued focus on operating efficiency, efforts to control costs as volumes grow and our disciplined integration of Advanced Disposal, which historically has generated lower operating margins.

Significant items affecting the comparability 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 our acquisition of Advanced Disposal;

(ii) merit and proactive market wage adjustments to hire and retain talent;

(iii) volume increases, particularly in our commercial and industrial collection businesses, which

when combined with driver shortages and turnover in certain markets, increased overtime and training hours;

(iv) higher incentive compensations costs and (v) increases in health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020.

Transfer and Disposal Costs — The increase in transfer and disposal costs was largely driven by additional disposal costs as a result of our acquisition of Advanced Disposal, increased volume and inflationary cost increases from our third-party haulers.

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;

(ii) inflationary cost increases for parts, supplies and third-party services;

(iii) labor cost pressure from our technicians, including accelerated overtime from labor shortages;

(iv) additional fleet maintenance driven by commercial and industrial volume increases and (v) an increase in container repairs driven by volume increases and delays in normal-course capital expenditures for steel containers due to both steel costs and supply chain constraints.

Subcontractor Costs — The increase in subcontractor costs was largely driven by (i) inflationary cost increases from third-party haulers;

(ii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling than our collection and disposal business and (iii) the acquisition of Advanced Disposal.

Cost of Goods Sold — The increase in cost of goods sold was primarily driven by increases in market prices for recycling commodities of approximately 160% and 115% during the three and nine months ended September 30, 2021, respectively, as compared to the prior year periods.

Fuel — The increase in fuel costs was primarily due to (i) increases of approximately 35% and 20% in market fuel prices during the three and nine months ended September 30, 2021, respectively, as compared with the prior year periods;

(ii) the acquisition of Advanced Disposal and (iii) volume increases in our commercial and industrial collection businesses.

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes as compared with the prior year periods was primarily driven by (i) landfill volume increases;

(ii) disposal rate increases at certain landfills and (iii) additional costs attributable to our acquisition of Advanced Disposal.

Landfill Operating Costs — The increase in landfill operating costs for the three and nine months ended September 30, 2021 as compared to the prior year periods was primarily due to the Advanced Disposal acquisition and increased testing and monitoring costs due, in part, to volume increases.

These increases were partially offset by lower leachate management costs primarily due to the cessation of certain transportation costs in our Tier 3 segment.

Additionally, the increase in landfill operating costs for the nine months ended September 30, 2021 was partially offset by the impacts of changes in the measurement of our environmental remediation obligations and recovery assets in both 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, the overall economic recovery, increasing business activity and claim volumes.

Other — Other operating cost increases were due to our acquisition of Advanced Disposal and increased equipment rental costs attributable, in part, to increased volumes and supply chain constraints slowing normal-course fleet and equipment orders.

Additionally, the three months ended September 30, 2021, additional volumes drove increases in supplies and vehicle transportation costs.

Partially offsetting these increases for the nine months ended September 30, 2021 was a favorable litigation settlement in the second quarter of 2021.

Our operating expenses for the first quarter of 2022 increased primarily due to (i) commodity-driven business impacts, particularly from recycling brokerage rebates and higher fuel prices;

(ii) inflationary cost pressures, primarily in maintenance and repairs and subcontractor costs;

(iii) labor cost pressure from frontline employee wage adjustments, increased hiring driving up training costs and higher overtime due to driver shortages and volume growth;

(iv) volume growth, particularly for our commercial collection business;

and (v) higher risk management costs.

These impacts were partially offset by our continued focus on operating efficiency and efforts to control costs as volumes grow.

Significant items affecting the comparison 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) merit and proactive market wage adjustments to hire and retain talent;

(ii) planned 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 and training hours and (iii) increases in health and welfare costs attributable to higher benefit costs and increases in medical care activity.

Transfer and Disposal Costs — The increase in transfer and disposal costs was largely driven by inflationary cost increases from our third-party haulers and increased commercial and industrial collection volumes.

Maintenance and Repairs — The increase in maintenance and repairs costs was largely driven by (i) inflationary cost increases for parts, supplies and third-party services;

(ii) additional fleet maintenance driven by supply chain constraints with delays in receiving new trucks;

(iii) commercial and industrial collection volume increases;

(iv) labor cost pressure from our technicians, including higher overtime from labor shortages and (v) an increase in container repairs driven by volume increases and delays in normal course capital expenditures for steel containers due to both steel costs and supply chain constraints.

Subcontractor Costs — The increase in subcontractor costs was largely driven by (i) inflationary cost increases, particularly related to labor costs, demand implications and fuel costs, from third-party haulers;

(ii) higher disposal volumes at our transfer stations and (iii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling than our collection and disposal business.

Cost of Goods Sold — The increase in cost of goods sold was primarily driven by an almost 60% increase in recycling commodity prices compared to the prior year period.

Fuel — The increase in fuel was primarily due to increases of almost 50% in market prices for diesel fuel and the cessation of federal natural gas fuel tax credits received in 2021 that have yet to be extended into 2022.

These increases were offset, in part, by a decrease attributable to lower diesel consumption as we expand our compressed natural gas fleet.

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes was primarily driven by (i) landfill volume increases and (ii) disposal rate increases at third-party disposal sites.

Risk Management — Risk management costs increased primarily due to an increase in claims costs due to unfavorable cost development on a limited population of severe cases and inflation in premiums.

Other — Other operating cost increases were primarily due to (i) inflationary cost pressures;

(ii) higher equipment rental costs attributable, in part, to increased volumes and supply chain constraints slowing normal course fleet and equipment orders and (iii) an increase in business travel in 2022.

Additionally, net gains on sales of certain assets in the prior year unfavorably impacted the comparability of the reported periods.

Selling, General and Administrative Expenses

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

Three Months Ended

Nine Months Ended

September 30,

The following table summarizes the major components of our selling, general and administrative expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

Labor and related benefits

1 unchanged sentence

Provision for bad debts

Selling, general and administrative expenses have increased primarily due to (i) increased labor, support and integration costs from our acquisition of Advanced Disposal;

(ii) higher incentive compensation costs and (iii) strategic investments in our digital platform.

Although our costs increased, the significant revenue increase 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 between reported periods include:

Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) additional headcount, including from our acquisition of Advanced Disposal;

(ii) higher incentive compensation costs;

(iii) annual merit increases for our employees;

(iv) costs associated with our strategic investments in our digital platform and (v) increases in health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020.

Professional Fees — Professional fees decreased for the nine months ended September 30, 2021 primarily due to lower consulting, advisory and legal fees following the completion of the acquisition of Advanced Disposal in the fourth quarter of 2020, offset by increased strategic investments in our digital platform and integration costs related to our acquisition of Advanced Disposal.

Provision for Bad Debts — For the nine months ended September 30, 2021, the decrease in provision for bad debts was primarily due to an overall improvement in customer account collections and decreased collection risk with certain customers.

The increase for the three months ended September 30, 2021, as compared to the prior year period, was primarily due to adjustments in the third quarter of 2020 to our reserve for bad debts as collection efforts began to improve in 2020.

Other — The increase in other expenses was primarily driven by costs associated with the acquisition of Advanced Disposal and increased digital costs.

Selling, general and administrative expenses have increased primarily due to strategic investments in our digital platform including investments in customer service digitalization, as well as investments in our sustainability initiatives and increased labor costs primarily due to merit increases.

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

Labor and Related Benefits — The increase in labor and related benefits was primarily due to annual merit increases for our employees and health and welfare costs attributable to higher benefit costs and increased medical activity.

Professional Fees — The increase in professional fees was primarily driven by increased support for the strategic investments in our digital platform and our sustainability initiatives.

Partially offsetting these increases were lower integration costs related to our acquisition of Advanced Disposal.

Other — The increase in other expenses was primarily driven by costs associated with increased technology infrastructure costs to support our strategic investments in our digital platform and an increase in business travel 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

Nine Months Ended

September 30,

The following table summarizes the components of our depreciation and amortization expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):

Depreciation of tangible property and equipment

1 unchanged sentence

Amortization of intangible assets

The increase in depreciation of tangible property and equipment was primarily related to our acquisition of Advanced Disposal and investments in capital assets, including our fleet and facilities.

The increase in amortization of landfill airspace was driven by (i) our acquisition of Advanced Disposal;

(ii) changes in landfill estimates and amortization rates, including a $15 million charge due to management’s decision to close a landfill in our Tier 3 segment earlier than expected, resulting in acceleration of the timing of capping, closure and post-closure activities and (iii) landfill volume increases from the continued economic recovery.

The increase in amortization of intangible assets is primarily driven by the amortization of acquired intangible assets related to the acquisition of Advanced Disposal.

The increase in depreciation of tangible property and equipment during the first quarter of 2022, as compared with the prior year period, was primarily driven by additional depreciation due to investments in capital assets to service our customers, such as containers and heavy equipment for our landfills.

The increase in amortization of landfill airspace during the first quarter of 2022 was driven by landfill volume increases from the economic recovery and changes in amortization rates driven by revisions in landfill estimates, which includes changes in the anticipated timing of capping, closure and post-closure activities.

The decrease in amortization of intangible assets during the during the first quarter of 2022 was primarily driven by the reduction in amortization of acquired intangible assets from the acquisition of Advanced Disposal.

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

During the nine months ended September 30, 2021, we recognized net gains of $17 million consisting of (i) a $35 million pre-tax gain in the third quarter of 2021 from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in our Tier 3 segment and (ii) an $8 million gain in the first quarter of 2021 from divestitures of certain ancillary operations in our Other segment.

These gains were partially offset by (i) a $20 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.

During the nine months ended September 30, 2020, we recognized non-cash impairment charges of $68 million 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.

Additionally, during the third quarter of 2020, we recognized $7 million of net charges primarily related to non-cash impairments of certain assets within our WM Renewable Energy business in our Other segment.

As the carrying values of the assets were not recoverable, we wrote off their entire net carrying value using an income approach based on estimated future cash flow projections (Level 3).

During the first quarter of 2022, we recognized 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 to the Condensed Consolidating Financial Statements.

During the first quarter of 2021, we recognized net charges of $17 million 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.

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

Nine Months Ended

September 30,

Period-to-Period

September 30,

The following table summarizes income from operations for our reportable segments for the three months ended March 31 (dollars in millions):

Period-to-Period

2 unchanged sentences

* Percentage change does not provide a meaningful comparison.

(a) “Other” includes (i) elements of our WMSBS business;

(a) “Other” includes (i) elements of our WMSBS business that are not included in the operations of our reportable segments;

(ii) elements of our landfill gas-to-energy operations managed by our WM Renewable Energy business and not included in the operations of our reportable segments;

(iii) elements of our third-party subcontract and administration revenues managed by our EES business and not included in the operations of our reportable segments;

(iv) our recycling brokerage services and (v) certain other expanded service offerings and solutions.

In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

(iv) our recycling brokerage services;

(v) certain other expanded service offerings and solutions and (vi) the results of

non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

(b) “Corporate and Other” operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments.

1 unchanged sentence

Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive program.

The significant items affecting income from operations, as well as the percentage of revenues, for our segments during the three and nine months ended September 30, 2021, as compared with the prior year periods, are summarized below:

● Solid Waste — Income from operations in our Solid Waste business increased for the three and nine months ended September 30, 2021, as compared to the prior year periods, primarily due to (i) revenue growth in our collection and disposal businesses driven by both volume and yield;

(ii) improved profitability in our recycling business from higher market prices for recycling commodities and improved costs at facilities where we have made investments in enhanced technology and equipment and (iii) a pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in our Tier 3 segment during the third quarter of 2021.

The nine months ended September 30, 2021 also benefited from a reduction in the provision for bad debts because these expenses were higher during the nine months ended 2020, due to the impacts of the pandemic on our outlook for customer receipts .

These increases were partially offset by (i) labor cost pressure from frontline employee wage adjustments, increased turnover driving up training costs and accelerated overtime due to driver shortages and volume growth;

(ii) inflationary cost pressures;

(iii) higher incentive compensation costs and (iv) a landfill amortization charge in our Tier 3 segment due to management’s

decision to close a landfill earlier than expected.

Labor and inflationary cost increases were more pronounced during the three months ended September 30, 2021 than the first half of 2021, resulting in a slight reduction in income from operations as a percentage of revenue during the current period.

Despite the current quarter margin pressure, income from operations as a percentage of revenue for the nine-month period has improved driven by the strong performance and volume growth in our commercial collection and landfill businesses as well as the improved profitability of our recycling business.

Additionally, the prior year periods were impacted by non-cash impairment charges, as further discussed below.

The positive earnings contributions of Advanced Disposal were offset by elevated depreciation and amortization of acquired assets.

During the nine months ended September 30, 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 during the second quarter of 2020 to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace.

● Other — The increase in income from operations was primarily driven by increased market values for renewable energy credits generated by our WM Renewable Energy business.

The increase in income from operations for the nine months ended September 30, 2021, as compared with the prior year period, was also due to a gain from the divestitures of certain ancillary operations during the first quarter of 2021.

● Corporate and Other — These costs have increased during the three and nine months ended September 30, 2021 due to (i) increased labor, support and integration costs from our acquisition of Advanced Disposal;

(ii) strategic investments in our digital platform;

(iii) higher incentive compensation costs and (iv) increased health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020.

The nine months ended September 30, 2021, as compared with the prior year period, was further impacted by a charge pertaining to reserves for certain loss contingencies during 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.

These increases were partially offset by lower consulting, advisory and legal fees following the completion of our acquisition of Advanced Disposal in the fourth quarter of 2020.

(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.

The significant items affecting income from operations for our segments during the first quarter of 2022, as compared with the prior year period, are summarized below:

● Solid Waste — Income from operations in our Solid Waste business increased primarily due to (i) revenue growth in our collection and disposal businesses driven by both yield and volume and (ii) improved profitability in our recycling business from higher market prices for recycling commodities and improved costs at facilities where we have made investments in enhanced technology and equipment.

These increases were partially offset by inflationary cost pressures and labor cost pressure from frontline employee wage adjustments, increased hiring driving up training costs and higher overtime due to driver shortages and volume growth.

● Other — The decrease in income from operations was primarily driven by our self-insurance program.

● Corporate and Other — The decrease in income from operations was primarily driven by (i) increased costs as a result of strategic investments we are making in our digital platform including investments in customer service digitalization, as well as investments in our sustainability initiatives and (ii) increased labor costs primarily due to merit increases.

This decrease in income from operations was partially offset by lower integration costs related to our acquisition of Advanced Disposal.

Interest Expense, Net

Our interest expense, net was $87 million and $282 million for the three and nine months ended September 30, 2021, respectively, compared to $97 million and $328 million for the three and nine months ended September 30, 2020, respectively.

The decreases are 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 in interest income as a result of lower cash and cash equivalents balances in 2021.

Loss on Early Extinguishment of Debt

In May 2021, WM 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, 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.

The loss on early extinguishment of debt for the nine months ended September 30, 2021 includes $220 million of charges related to the tender offer, including cash paid of $211 million related to 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.

Our interest expense, net was $85 million and $97 million during the three months ended March 31, 2022 and 2021, respectively.

The decrease is primarily due to 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 and, to a lesser extent, the impacts that lower interest rates have had on the cost of certain of our tax-exempt debt.

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of $14 million and $34 million for the three and nine months ended September 30, 2021, respectively, compared to $16 million and $56 million for the three months and nine months ended September 30, 2020, respectively.

We recognized equity in net losses of unconsolidated entities of $15 million and $9 million during the three months ended March 31, 2022 and 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 interest 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.

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.

We generate tax benefits, including tax credits, from the losses incurred from these investments which are discussed further in Note 4 to the Condensed Consolidated Financial Statements.

Income Tax Expense

Our income tax expense was $167 million and $396 million for the three and nine months ended September 30, 2021, respectively, compared to $126 million and $288 million for the three and nine months ended September 30, 2020, respectively.

Our effective income tax rate was 23.7% and 23.2% for the three and nine months ended September 30, 2021, respectively, compared to 24.5% and 21.4% for the three and nine months ended September 30, 2020, respectively.

The decrease in our effective income tax rate when comparing the three months ended September 30, 2021 with the prior year period was due to the detrimental impact of non-deductible transaction costs incurred during the prior year period related to our acquisition of Advanced Disposal which did not reoccur in the current period.

The decrease was partially offset by a net nominal increase in our effective income tax rate during the current year period resulting from a pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in 2021 which was not taxable and unfavorable adjustments to accruals and related deferred taxes primarily due to a change from our initial expectations of the tax effects of the Advanced Disposal acquisition and related divestitures.

The increase in our effective income tax rate for the nine-month period ended September 30, 2021 as compared with the prior year period was due to (i) lower federal tax credits in 2021;

(ii) unfavorable adjustments to accruals and related deferred taxes discussed above and (iii) a decrease in excess tax benefits associated with equity-based compensation in the current year period, partially offset by a pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in 2021 which was not taxable.

In addition, our effective income tax rate in 2020 included the detrimental impact of non-deductible transaction costs related to closing the acquisition of Advanced Disposal in 2020.

Our income tax expense and effective income tax rates were $157 million, or 23.5%, and $124 million, or 22.7%, for the three months ended March 31, 2022 and 2021, respectively.

The increase in our income tax expense and effective income tax rate when comparing the three months ended March 31, 2022 with the prior year period are primarily driven by (i) an increase in pre-tax income in 2022, which decreased the effective tax rate impact of our federal tax credits;

and (ii) unfavorable adjustments to accruals and related deferred taxes, both of which were partially offset by a benefit

from higher federal tax credits as a result of our incremental investment in low-income housing properties.

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.

The Company consistently generates cash flow from operations that meets and exceeds our working capital needs, payment of our dividends, investment in the business through capital expenditures and tuck-in acquisitions, and funding of strategic growth and sustainability 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 Accounts and Debt Obligations

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

September 30,

Summary of Cash and Cash Equivalents, Restricted Funds and Debt Obligations

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

Cash and cash equivalents

Restricted trust and escrow accounts:

Restricted funds:

Insurance reserves

Final capping, closure, post-closure and environmental remediation funds

Total restricted trust and escrow accounts (a)

Total restricted funds (a)

Current portion

Long-term portion

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

As of September 30, 2021, we had $2.8 billion of debt maturing within the next 12 months, including (i) $1.4 billion of short-term borrowings under our commercial paper program (net of related discount on issuance);

(a) As of March 31, 2022 and December 31, 2021, $80 million of these account balances was included in other current assets in our Condensed Consolidated Balance Sheets.

As of March 31, 2022, we had approximately $3.0 billion of debt maturing within the next 12 months, including (i) $1.7 billion of short-term borrowings under our commercial paper program (net of related discount on issuance);

(ii) $645 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities;

(iii) $500 million of 2.9% senior notes that mature in September 2022 and (iv) $180 million of other debt with scheduled maturities within the next 12 months, including $71 million of tax-exempt bonds.

As of September 30, 2021, we have classified $2.2 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.

As of March 31, 2022, we have classified $2.6 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S.

and Canadian revolving credit facility (“$3.5 billion revolving credit facility”).

The remaining $435 million of debt maturing in the next 12 months is classified as current obligations.

In May 2021, WM issued $950 million of senior notes consisting of $475 million of 2.00% senior notes due June 1, 2029 and $475 million of 2.95% senior notes due June 15, 2041.

The net proceeds from these debt issuances were $942 million, all of which were used along with available cash on hand, to retire $1.3 billion of certain high-coupon senior notes.

The cash paid includes the principal amount of the debt retired, $211 million of related premiums and other third-party costs, which are classified as loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations, and $15 million of accrued interest.

As of March 31, 2022, we also had $54 million of variable-rate tax-exempt bonds with long-term scheduled maturities supported by letters of credit under our $3.5 billion revolving credit facility.

The interest rates on our variable-rate tax-exempt bonds reset on a 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 March 31, 2022.

Guarantor Financial Information

WM Holdings has fully and unconditionally guaranteed all of WM’s senior indebtedness.

WM has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness.

None of WM’s other subsidiaries have guaranteed any of WM’s or WM Holdings’ debt.

In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WM and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WM and WM Holdings on a combined basis after elimination of intercompany transactions between WM and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):

September 30,

WM Holdings has fully and unconditionally guaranteed all of WMI’s senior indebtedness.

WMI has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness.

None of WMI’s other subsidiaries have guaranteed any of WMI’s or WM Holdings’ debt.

In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WMI and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WMI and WM Holdings on a combined basis after elimination of intercompany transactions between WMI and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):

March 31, 2022

December 31, 2021

Balance Sheet Information:

3 unchanged sentences

Noncurrent liabilities:

Advances due to affiliates

Advances due to affiliates (a)

Other noncurrent liabilities

Nine Months Ended

September 30, 2021

The previously reported balance of Advances due to affiliates as of December 31, 2021 was understated and has been corrected in our current year presentation above.

Three Months Ended

March 31, 2022

Income Statement Information:

1 unchanged sentence

Summary of Cash Flow Activity

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

Nine Months Ended

September 30,

The following is a summary of our cash flows for the three months ended March 31 (in millions):

Net cash provided by operating activities

1 unchanged sentence

Net cash used in financing activities

Net Cash Provided by Operating Activities — Our operating cash flows increased by $697 million as compared with the prior year period, as a result of (i) an increase in earnings primarily attributable to our collection, disposal and recycling lines of business;

(ii) lower interest payments in the current year period primarily due to certain refinancing activities and the retirement of high-coupon debt during 2020 reducing our overall interest rates;

(iii) favor able changes in our working capital, net of effects of acquisitions and divestitures;

(iv) the acquisition of Advanced Disposal and (v) lower annual incentive compensation payments in the current year.

Our working capital was favorably impacted by system and process improvements that contributed to a significant improvement in our days-to-pay metrics.

T hese favorable impacts were partially offset by (i) higher income tax payments in the current year 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 through the third quarter of 2020 as provided for by the Coronavirus Aid, Relief and Economic Security Act.

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

● Capital Expenditures — We used $1,130 million and $1,238 million for capital expenditures during the nine months ended September 30, 2021 and 2020, respectively.

The decrease in capital spending was primarily driven by timing differences in our fleet purchases as well as supply chain constraints in advancing current year projects.

Net Cash Provided by Operating Activities — Our operating cash flows increased by $138 million for the three months ended March 31, 2022, as compared with the prior year period, as a result of an increase in earnings attributable to our collection and disposal and recycling lines of business, as well as lower interest payments due to the timing of certain interest payments and refinancing activities in 2021 that reduced our overall interest rate, partially offset by higher annual incentive compensation payments in the current year.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the three months ended March 31, 2022 and 2021 are summarized below:

● Capital Expenditures — We used $418 million and $270 million for capital expenditures during the three months ended March 31, 2022 and 2021, respectively.

The increase in capital spending is primarily driven by timing differences in our fixed asset purchases, as well as our intentional investment in sustainability and growth in recycling and renewable energy projects.

The Company continues to maintain a disciplined focus on capital management to prioritize investments in the long-term growth of our business and for the replacement of aging assets.

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

● Debt (Repayments) Borrowings — The following summarizes our cash borrowings and repayments of debt for the nine months ended September 30 (in millions):

Revolving credit facility

● Other, Net — The year-over-year changes in other investing activities were primarily driven by changes in our investment portfolio associated with a wholly-owned insurance captive.

During the three months ended March 31, 2022 and 2021, we used $97 million and $73 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities.

Additionally, we used $28 million in 2022 to make an initial cash payment associated with a new low-income housing investment.

Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the three months ended March 31, 2022 and 2021 are summarized below:

● Debt Repayments and Borrowings — The following summarizes our cash borrowings and repayments of debt for the three months ended March 31 (in millions):

Commercial paper (a)

Tax-exempt bonds

Revolving credit facility

Commercial paper (a)

2 unchanged sentences

(a) Beginning in the second quarter of 2021, we elected to report these cash flows on a gross basis.

Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to debt borrowings and repayments.

● Premiums and Other Paid on Early Extinguishment of Debt — During the nine months ended September 30, 2021, we paid premiums and other third-party costs of $211 million to retire certain high-coupon senior notes.

See Note 3 to the Condensed Consolidated Financial Statements for further discussion of this debt transaction.

● Common Stock Repurchase Program — During the nine months ended September 30, 2021, we repurchased $1.0 billion of our common stock pursuant to three accelerated share repurchase (“ASR”) agreements, as discussed further in Note 11 to the Condensed Consolidated Financial Statements.

We expect to repurchase the full amount of our remaining authorization of $350 million of common stock during the fourth quarter of 2021.

During the three months ended March 31, 2020, we repurchased $402 million of our common stock, which included $313 million related to a February 2020 ASR agreement and $89 million in open market transactions.

We did not repurchase any of our common stock during the second and third quarters of 2020.

Reclassifications have been made to our prior period information for comparability purposes.

Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to our debt borrowings and repayments.

● Common Stock Repurchase Program — During each of the three months ended March 31, 2022 and 2021, we used $250 million to repurchase shares of our common stock under accelerated share repurchase agreements.

See Note 10 to the Condensed Consolidated Financial Statements for additional information.

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

We paid cash dividends of $730 million and $696 million during the nine months ended September 30, 2021 and 2020, respectively.

We paid cash dividends of $275 million and $247 million during the three months ended March 31, 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.

5 unchanged sentences

We believe free cash flow gives investors useful insight into how we view our liquidity, but the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.

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

Three Months Ended

Nine Months Ended

September 30,

Our calculation of free cash flow and reconciliation to net cash provided by operating activities for the three months ended March 31 is shown in the table below (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:

Net cash provided by operating activities

Capital expenditures

Capital expenditures to support the business

Capital expenditures - sustainability growth investments (a)

Total capital expenditures

Proceeds from divestitures of businesses and other assets, net of cash divested

Free cash flow

These growth investments are intended to further our sustainability leadership position by increasing recycling volumes and growing renewable natural gas generation and we expect they will deliver circular solutions for our customers and drive environmental value to the communities we serve.

Critical Accounting Estimates and Assumptions

2 unchanged sentences

In some cases, these estimates are difficult to determine and we must exercise significant judgment.

In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, long-lived asset impairments, the fair value of assets and liabilities acquired in business combinations or as asset acquisitions and reserves associated with our insured and self-insured claims, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

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 assets and intangible asset impairments and the fair value of assets and liabilities acquired in business combinations, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 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 nine months ended September 30, 2021, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

Seasonal Trends

2 unchanged sentences

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 impact the operating results of the Areas affected.

Service disruptions caused by severe storms, extended periods of inclement weather or climate events can significantly affect the operating results of the geographic areas affected.

On the other hand, certain destructive weather and climate conditions, such as wildfires in the Western U.S.

and hurricanes that most often impact our operations in the Southern and Eastern U.S.

during the second half of the year, can increase our revenues in the Areas affected as a result of the waste volumes generated by these events.

While weather-related and other event-driven 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.

A portion of our collection revenues are generated under long-term agreements with price adjustments based on various indices intended to measure inflation.

Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.

Accelerated and pronounced economic pressures, particularly related to inflationary cost pressures on labor and the goods and services we rely upon to deliver service to our customers, have had a more significant impact on our cost structure and capital expenditures in 2021.

We are taking proactive steps to increase the price of our service and to manage our costs through efficiency, productivity and automation in order to mitigate the inflationary cost pressures we have seen in our business.

Refer to Item 1A.

Risk Factors below for further discussion.

Quantitative and Qualitative Disclosures About Market Risk.

Information about market risks as of September 30, 2021 does not differ materially from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2020.

during the second half of the year, can increase our revenues in the geographic 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, due to significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.

Accelerated and pronounced economic pressures, particularly related to inflationary cost pressures on labor and the goods and services we rely upon to deliver service to our customers, have continued to have a significant impact on our cost structure and capital expenditures in the first quarter 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 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 many of our customers

we provide services under multi-year contracts that can restrict our ability to increase prices and 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 the continued rapid pace of inflation as well as the relatively low inflationary cost environment of the first half of 2021, such timing lag persists.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis