What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-10-26 compared with 2022-07-27 · 188 added, 145 removed, 303 unchanged (52% of the section changed)

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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

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 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.

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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.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we published our 2022 Sustainability Report providing details on our Environmental, Social and Governance (“ESG”) performance and outlining new 2030 priorities.

The Sustainability Report conveys the strong linkage between the Company’s ESG goals and our growth strategy, inclusive of the planned expansion of the Company’s recycling and renewable energy businesses.

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.

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.

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These factors generally correlate to volumes of waste generated and impact our revenue.

Negative economic conditions, including the impact of COVID-19 and other macroeconomic trends, can and have caused customers to reduce their service needs.

Negative economic conditions 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.

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We believe the Company’s industry-leading asset network and strategic focus on investing in our people and our digital platform will give the Company the necessary tools to address the evolving challenges impacting the Company and our industry.

In line with our commitment to continuous improvement and a differentiated customer experience, we remain focused on our customer service digitalization initiative to change the way we interact with our customers.

In line with our commitment to continuous improvement and a differentiated customer experience, we remain focused on our automation and optimization investments to enhance our operational efficiency and change the way we interact with our customers.

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.

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We continue to make these investments to further digitalize our customer self-service and implement technologies to further enhance the safety, reliability and efficiency of our collection operations.

Additionally, in early 2022, we implemented our new enterprise resource planning system that 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 half of 2022.

Additionally, in 2022, we implemented our new enterprise resource planning systems that will contribute to operational and service excellence by empowering our people through modern, simplified and connected finance, accounting and human capital management platforms.

Certain macroeconomic pressures and market disruption, driven in part by the COVID-19 pandemic and other external events and conditions, including rising inflation and a constrained labor market, intensified during the second half of 2021 and have continued throughout 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.

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Aspects of our business rely on third-party transportation providers, and such services have become more limited and expensive.

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

The extent and duration of the impact of these labor market, supply chain and transportation challenges are subject to numerous external factors beyond our control, including broader macroeconomic conditions;

Additionally, demand for recycled material strengthened through 2021 and into early 2022, moderating during the second quarter and began to decline in the third quarter of 2022.

Continued significant headwinds are expected for the remainder of the year and into 2023 amid significant price declines resulting from the slowdown in the global economy, which is reducing retail demand and the need for package shipping.

We are also currently experiencing margin pressures from commodity-driven business impacts, particularly from higher fuel prices.

The extent and duration of the impact of these labor market, supply chain, transportation and recycling 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 execute our daily operations diligently and safely.

future resurgence in pandemic conditions and restrictions;

geopolitical conflicts and responses and supply and demand for recycled materials.

As we experience inflationary cost pressures, 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 these macroeconomic pressures, 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 second quarter of 2022, we delivered strong revenue, income from operations and operating cash flows as we continued to experience yield and volume improvement in our commercial and industrial collection businesses and at our landfills.

We remain diligent in the execution of our disciplined pricing programs to effectively overcome inflationary

cost pressures, and we remain focused on driving operating efficiencies and reducing discretionary spend.

During the third quarter of 2022, we delivered strong revenue and income from operations as we continued to experience yield and volume improvement in our collection and disposal business.

We remain diligent in offering a competitively profitable service that meets the needs of our customers and are focused on driving operating efficiencies and reducing discretionary spend.

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

We also continue to make investments in recycling automation technology and customer service digitalization to enhance our operational efficiency and improve labor productivity for all lines of business.

During the second quarter of 2022, we allocated $550 million of available cash to capital expenditures, both as a continuing investment in our traditional solid waste business and to support growth in our sustainability asset network.

Despite the significant downturn in commodity prices for recyclable material, which were caused by overall lower demand and growing supply led by global economic conditions, we remain committed to our investment in recycling automation, which reduces costs and increases throughput, positioning us to overcome commodity price headwinds and deliver a differentiated service.

We also continue to make investments in automation and optimization to enhance our operational efficiency and improve labor productivity for all lines of business.

During the third quarter of 2022, we allocated $757 million of available cash to capital expenditures, both as a continuing investment in our traditional solid waste business and to support growth in our sustainability asset network.

We also allocated $808 million to our shareholders through dividends and common stock repurchases.

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

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

● Revenues of $5,075 million, compared with $4,665 million in the prior year period, an increase of $410 million, or 8.8%.

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

(ii) increases from our fuel surcharge program;

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

(ii) increases from our fuel surcharge program and (iii) volume growth.

These increases were partially offset by lower average market prices for recycling commodities;

● Operating expenses of $3,156 million, or 62.2% of revenues, compared with $2,906 million, or 62.3% of revenues, in the prior year period.

The $406 million increase is primarily attributable to (i) commodity-driven business impacts, particularly from higher fuel prices and recycling brokerage rebates, which also significantly impacted our operating expense as a percentage of revenue;

(ii) inflationary cost pressures and (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;

The $250 million increase is primarily attributable to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs;

(ii) commodity-driven business impacts from higher fuel prices and (iii) labor cost pressure from frontline employee wage adjustments.

These increases were partially offset by (i) a $26 million catch-up benefit from the extension of alternative fuel tax credits during the quarter that was retroactive to January 1, 2022 and (ii) the commodity-driven business impacts of lower recycling rebates.

Operating expense as a percentage of revenue improved in the collection and disposal business as pricing and operating efficiencies worked to overcome inflationary cost pressures.

This improvement was largely offset by the impacts of a sharp decline in market prices for recycled commodities;

● Selling, general and administrative expenses were $473 million, or 9.3% of revenues, compared with $469 million, or 10.1% of revenues, in the prior year period.

The $42 million increase is primarily attributable to (i) labor costs from higher incentive compensation and merit increases;

(ii) strategic investments in our digital platform and sustainability initiatives and related supporting technology and (iii) an increase in provision for bad debts driven by higher revenues;

The $4 million increase is primarily attributable to strategic investments in our digital platform, including those that support our ongoing sustainability initiatives;

● Income from operations was $942 million, or 18.6% of revenues, compared with $806 million, or 17.3% of revenues, in the prior year period.

The increase in the current quarter was driven by strong revenue growth allowing us to overcome cost pressures from the inflationary cost environment;

The increase in the current quarter was primarily driven by deliberate steps to grow revenue and effectively manage costs through operational efficiencies, which allowed us to overcome inflationary pressures;

● Net income attributable to Waste Management, Inc.

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With the increase in income from operations, as discussed above, there was also an increase in our income tax expense impacting our net income;

Additionally, the Company incurred a $220 million loss on early extinguishment of debt in the prior year period;

● Net cash provided by operating activities was $1,182 million compared with $1,184 million in the prior year period.

Our net cash provided by operating activities was relatively flat when compared to the prior year period, primarily due to the effect of increased tax payments and the timing of receivable collections in the current year;

Our net cash provided by operating activities was relatively flat when compared to the prior year period, primarily due to higher earnings offset by the effect of increased tax payments and an increase in the number of payroll cycles in the current year period;

● Free cash flow was $432 million compared with $773 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.

The decrease in free cash flow is primarily attributable to (i) an increase in capital spending, primarily driven by our intentional investment in sustainability growth projects as well as timing differences in our fixed asset purchases to support our ongoing operations and (ii) lower proceeds from divestitures of businesses.

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

Refer to Free Cash Flow below for our definition of free cash flow, additional information about our use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure.

Refer to Free Cash Flow below for our definition of free cash flow, additional information about our

use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure.

Results of Operations

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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 Sustainability and Environmental Solutions (“SES”) businesses,

recycling brokerage services, landfill gas-to-energy services and certain other expanded service offerings and solutions.

We also provide additional services that are not managed through our Solid Waste business, including both our Strategic Business Solutions (“WMSBS”) and sustainability businesses, which include landfill gas-to-energy services, environmental solutions services and recycling brokerage services.

We also offer 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):

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Six Months Ended

Nine Months Ended

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Other collection

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

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

(iii) certain services within our SES 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.

(ii) certain services within our sustainability business, including our landfill gas-to-energy operations managed by our WM Renewable Energy business, our construction and remediation services and our services associated with the disposal of fly ash and (iii) 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.

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Period-to-Period Change for the

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Collection and disposal

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(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.

(d) Beginning in the fourth quarter of 2021, includes changes in our revenue attributable to our WM Renewable Energy business from yield and volume.

We have revised our prior year results to conform with the current year presentation.

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Total collection

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

We continue to experience strong average yield growth in our collection line of business of 7.8% and 7.3% for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods, illustrating our focus on our pricing efforts in this inflationary environment.

We are also continuing to see growth in our landfill business with our municipal solid waste business experiencing 5.8% and 5.9% average yield growth for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

Recycling — Recycling revenue increased $96 million and $212 million for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods, primarily from higher market prices for recycling commodities.

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

During the three and six months ended June 30, 2022, average market prices for recycling commodities at the Company’s facilities were approximately 30% and 40% higher, respectively, as compared to the prior year periods.

The year-over-year favorable trend moderated in the second quarter of 2022 as compared with the first quarter of 2022.

We currently expect the year-over-year pricing comparison to be slightly lower for the remainder of 2022 due to the strong pricing we experienced in the second half of 2021 when we saw demand for recycled materials outpacing supply.

We continue to experience strong average yield growth in our collection line of business of 8.7% and 7.8% for the three and nine months ended September 30, 2022, respectively, illustrating our focus on our pricing efforts in this inflationary environment.

We are also continuing to see growth in our disposal business, with our municipal solid waste experiencing 6.5% and 6.1% average yield growth for the three and nine months ended September 30, 2022, respectively.

Recycling — Recycling revenue decreased $54 million and increased $158 million for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

Demand for recycled material strengthened through 2021 and into early 2022, moderating during the second quarter and began to decline in the third quarter of 2022.

During the third quarter of 2022, average market prices for recycling commodities at the Company’s facilities were approximately 30% lower as compared to the prior year period.

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 $153 million and $243 million for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

(ii) yield from our WM Renewable Energy business and (iii) other mandated fees, increased $132 million and $375 million for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

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.

Revenue from our fuel surcharge program increased $129 million and $201 million for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

Market prices for diesel fuel increased approximately 70% and 60% for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

Revenue from yield growth in our WM Renewable Energy business increased $22 million and $38 million for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

This increase was primarily driven by increases in the value for electricity, renewable natural gas and environmental credits.

Revenue from our fuel surcharge program increased $123 million and $324 million for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

Market prices for diesel fuel increased approximately 55% and 60% for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

Revenue from yield growth in our WM Renewable Energy business increased $8 million and $46 million for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

This increase was primarily driven by increases in the value for electricity and renewable natural gas.

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

These amounts have not significantly impacted the change in revenue for the three and six months ended June 30, 2022, as compared with the prior year periods.

Our revenues from volumes (excluding volumes from acquisitions and divestitures) increased $73 million, or 1.6%, and $217 million, or 2.5%, for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

Our collection and disposal business volumes grew 2.3% and 3.2% for the three and six months ended June 30, 2022, respectively, as compared with the prior year periods.

Recovery in our volumes from COVID-related impacts continued during the second quarter of 2022, although the pace has moderated somewhat, as volume recoveries accelerated in the prior year period.

Special waste volumes at our landfills and our commercial collection business have been the most significant drivers of volume growth during the first half of 2022, primarily due to an increase in event-driven projects and organic revenue growth from improvement in the overall business environment.

These amounts have not significantly impacted the change in revenue for the three and nine months ended September 30, 2022, as compared with the prior year periods.

Our revenues from volumes (excluding volumes from acquisitions and divestitures) increased $47 million, or 1.0%, and $264 million, or 2.0%, for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

Our collection and disposal business volumes grew 1.4% and 2.5% for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

Our third quarter of 2022 volume growth has moderated when compared to the accelerated volume recovery from COVID-related impacts experienced in the prior year period.

Special waste volumes at our landfills have been the most

significant driver of volume growth, primarily due to an increase in event-driven projects.

In addition, our WMSBS business volumes grew as a result of our continued focus on a differentiated service model for national accounts customers.

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Labor and related benefits

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Risk management

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

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

Our operating expenses increased primarily due to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs;

(ii) commodity-driven business impacts from higher fuel prices and (iii) labor cost pressure from frontline employee wage adjustments.

These increases were partially offset in the third quarter of 2022 by (i) a $26 million catch-up benefit from the extension of alternative fuel tax credits that was retroactive to January 1, 2022 and (ii) commodity-driven business impacts from lower recycling rebates.

For the nine months ended September 30, 2022, as compared with the prior year period, commodity-driven business impacts from higher recycling rebates in the first half of 2022 more than offset the decrease in the third quarter of 2022.

We also continue to focus on operating efficiency and efforts to control costs.

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) intentional headcount growth as volume increases, particularly in our commercial and industrial collection businesses, which when combined with continued driver shortages and turnover in certain markets increased overtime and training hours and (iii) increases in health and welfare costs attributable to our intentional investment in delivering a leading benefits program for our employees and increases in medical care activity.

Transfer and Disposal Costs — The increase in transfer and disposal costs was largely driven by (i) increased disposal fees at third-party disposal sites;

(ii) inflationary cost increases, which includes higher fuel, from our third-party haulers and (iii) increased commercial and industrial collection volumes.

Labor and Related Benefits — The increase in labor and related benefits costs was largely driven by (i) proactive market wage adjustments to hire and retain talent;

(ii) merit increases and annual incentive compensation costs and (iii) increases in health and welfare costs attributable to our intentional investment in delivering a leading benefits program for our employees and increases in medical care activity.

Transfer and Disposal Costs — The increase in transfer and disposal costs was largely driven by inflationary cost increases, which includes increased disposal fees at third-party sites and higher fuel from our third-party haulers.

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, which have delayed deliveries of new trucks;

(iii) labor cost increases for our technicians, including higher overtime;

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

(iii) labor cost increases for our technicians, including higher overtime and (iv) an increase in container repairs driven by delays in delivery of steel containers due to supply chain constraints.

Subcontractor Costs — The increase in subcontractor costs was largely driven by (i) inflationary cost increases, particularly for fuel and labor costs from third-party haulers and (ii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling than our collection and disposal business.

Cost of Goods Sold — The increase in cost of goods sold was primarily driven by the approximate 30% and 40% increase in recycling commodity prices during three and six months ended June 30, 2022, respectively, as compared to the prior year periods.

Fuel — The increase in fuel costs was primarily due to increases in market diesel and natural gas fuel prices during the three and six months ended June 30, 2022, respectively, as compared to the prior year periods.

This increase is also due to the cessation of federal natural gas fuel tax credits received in 2021 that have yet to be extended into 2022.

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes was primarily driven by higher franchise fees paid to certain municipalities where we operate and overall rate increases in our fees and taxes paid on our volumes.

Risk Management — Risk management costs increased for three and six months ended June 30, 2022 as compared with the prior year periods, primarily due to inflation in premiums.

The six months ended June 30, 2022 was also impacted by an increase in claims costs due to unfavorable cost development on a limited population of severe cases during the first quarter of 2022.

Cost of Goods Sold — The increase in cost of goods sold for the nine months ended September 30, 2022, was primarily driven by an approximate 40% increase in recycling commodity prices for the six months ended June 30, 2022, as

compared to the prior year period, partially offset by an approximate 30% decrease in recycling commodity prices for the three months ended September 30, 2022, as compared to the prior year period.

Fuel — The increase in fuel costs was primarily due to increases in market diesel and natural gas fuel prices during the three and nine months ended September 30, 2022, respectively, as compared to the prior year periods.

This increase was partially offset in the third quarter of 2022 by a $26 million catch-up benefit from the extension of alternative fuel tax credits that was retroactive to January 1, 2022.

Landfill Operating Costs — Our landfill operating costs were essentially flat for the reported periods.

The variability in the reported periods is largely due to changes in the measurement of our environmental remediation obligations and recovery assets in 2022 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 2022, there was an increase in the discount rate, which resulted in a reduction in the net liability balance and a credit to expense.

Risk Management — Risk management costs increased primarily due to inflation in premiums.

The nine months ended September 30, 2022 was also impacted by an increase in claims costs due to unfavorable cost development on a limited population of severe cases.

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

(ii) a favorable litigation settlement in the second quarter of 2021;

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

(ii) a write-down of assets and inventory related to Hurricane Ian;

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

Additionally, a favorable litigation settlement in the second quarter of 2021 impacted the comparison for the nine months ended September 30, 2022.

Selling, General and Administrative Expenses

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Labor and related benefits

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Provision for bad debts

Selling, general and administrative expenses have increased primarily due to (i) increased labor costs from higher incentive compensation costs and merit increases;

(ii) strategic investments in our digital platform and sustainability initiatives and related supporting technology and (iii) an increase in provision for bad debts.

Although our costs increased, the significant revenue increases in our high-margin businesses, which include our landfill and commercial and industrial collection businesses, positioned us to reduce our overall selling, general and administrative expenses as a percentage of revenues when compared with the prior year periods.

Selling, general and administrative expenses have increased primarily due to strategic investments in our digital platform, including those that support our ongoing sustainability initiatives.

Although our costs increased, the significant revenue increases 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 for the reported periods include:

Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) higher incentive compensation costs;

(ii) annual merit increases for our employees;

(iii) increases in health and welfare costs attributable to our intentional investment in delivering a leading benefits program for our employees and increases in medical care activity.

These increases are partially offset by a decline in contract labor costs related to the integration of Advanced Disposal Services, Inc.

Labor and Related Benefits —The decrease in labor and related benefits for the three months ended September 30, 2022, as compared with the prior year period, is primarily related to lower long-term incentive compensation costs.

Higher annual incentive compensation costs, annual merit increases and increases in health and welfare costs attributable to our intentional investment in delivering a leading benefits program for our employees and

increases in medical care activity partially offset such decrease for the three months ended September 30, 2022, and more than offset such decrease for the nine months ended September 30, 2022, as compared with the prior year periods.

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

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

(“Advanced Disposal”).

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

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

Provision for Bad Debts — The increase in provision for bad debts is primarily related to our increased revenue.

Other — The increase in other expenses was primarily driven by costs associated with an increase in technology infrastructure to support our strategic investments in our digital platform and an increase in business travel in 2022.

Depreciation and Amortization Expenses

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Depreciation of tangible property and equipment

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The increase in depreciation of tangible property and equipment was primarily driven by investments in capital assets to service our customers, such as heavy equipment and containers.

The increase in amortization of landfill airspace was driven primarily by landfill volume increases 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 landfill airspace for the three and nine months ended September 30, 2022 was primarily driven by a prior year charge of $15 million due to management’s decision to close a landfill in our West Tier segment earlier than expected, resulting in acceleration of the timing of capping, closure and post-closure activities during the third quarter of 2021.

The decrease for the nine months ended September 30, 2022, when compared with the prior year period, was partially offset by landfill volume increases and changes in amortization rates from revisions in landfill estimates.

The decrease in amortization of intangible assets 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

For the six months ended June 30, 2022, we recognized a $17 million charge in the first quarter in our Corporate and Other segment to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site, as discussed in Note 6 to the Condensed Consolidated Financial Statements.

For the six months ended June 30, 2021, we recognized net charges of $17 million in the first quarter 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.

For the nine months ended September 30, 2022, we recognized a $17 million charge in the first quarter in our Corporate and Other segment to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site, as discussed in Note 6 to the Condensed Consolidated Financial Statements.

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

Income from Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Period-to-Period

September 30,

Period-to-Period

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(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 SES business and not included in the operations of our reportable segments;

(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.

(ii) elements of our sustainability business that includes landfill gas-to-energy operations managed by our WM Renewable Energy business, our environmental solutions services and recycling brokerage services and not included in the operations of our reportable segments;

(iii) certain other expanded service offerings and solutions and (iv) 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.

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

The significant items affecting income from operations for our segments during the three and six months ended June 30, 2022, as compared with the prior year periods, are summarized below:

● Solid Waste — Income from operations in our Solid Waste business increased primarily due to revenue growth in our collection and disposal businesses driven by both yield and volume.

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.

● Corporate and Other — The decrease in income from operations from our Corporate and Other segment was primarily driven by increased costs for (i) labor, particularly due to higher incentive compensation costs and merit increases;

(ii) strategic investments in our digital platform and (iii) investments in our sustainability initiatives.

The impact of these higher costs was partially offset by lower integration costs related to our acquisition of Advanced Disposal and the impact of adjustments from closure and post-closure activity at our closed landfills in the prior year periods.

The significant items affecting income from operations for our segments during the three and nine months ended September 30, 2022, as compared with the prior year periods, 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) a $26 million catch-up benefit from the extension of alternative fuel tax credits that was retroactive to January 1, 2022.

Our income from operations for the nine months ended September 30, 2022 was favorably impacted by an increase in our recycling line of business as a result of an overall increase in average market prices for recycling commodities during the first half of 2022.

These increases were partially offset by (i) inflationary cost pressures;

(ii) labor cost increases from frontline employee wage adjustments and (iii) commodity-driven business impacts from higher fuel prices.

Additionally, the prior year included a pre-tax net gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in our East Tier segment and a charge due to management’s decision to close a landfill in our West Tier segment earlier than expected, resulting in acceleration of the timing of capping, closure and post-closure activities in the third quarter of 2021.

● Corporate and Other — The increase in income from operations from our Corporate and Other segment for the three months ended September 30, 2022, as compared with the prior year period, was primarily driven by (i) lower long-term incentive compensation costs and (ii) lower integration costs from our acquisition of Advanced Disposal.

Increased costs to support strategic investments in our digital platform, including those that support our ongoing sustainability initiatives, and increased labor costs from higher annual incentive costs and merit

increases, partially offset the three months ended September 30, 2022, and more than offset the nine months ended September 30, 2022, as compared with the prior year periods.

Interest Expense , Net

Our interest expense, net was $93 million and $178 million for the three and six months ended June 30, 2022, respectively, compared to $98 million and $195 million for the three and six months ended June 30, 2021, respectively.

The decrease in the first half of 2022 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 primarily during the first quarter of 2022.

In the second half of 2022, we expect that interest costs will increase compared to 2021 as a result of incremental debt issued in the second quarter of 2022 and the effect of rising interest rates primarily on borrowings under our commercial paper program and $1.0 billion, two-year, U.S.

term credit agreement (“Term Loan”).

Our interest expense, net was $91 million and $269 million for the three and nine months ended September 30, 2022, respectively, compared to $87 million and $282 million for the three and nine months ended September 30, 2021, respectively.

The increase for the third quarter primarily related to borrowings incurred under our $1.0 billion two-year, U.S.

term credit agreement (“Term Loan”) in the second quarter of 2022.

The decrease for the nine months ended September 30, 2022, as compared with the prior year period, 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 had on the cost of certain of our tax-exempt debt during the first quarter of 2022.

Also impacting the three and nine months ended September 30, 2022, were benefits from higher capitalized interest and increases in interest income as a result of higher cash and cash equivalents balances.

During 2022, we have started to see an increase in interest rates on our floating-rate debt, including commercial paper and variable-rate tax-exempt bonds.

The impact of the increase is immaterial to the reported periods;

however, we expect interest expense to meaningfully increase in 2023.

See Note 3 to the Condensed Consolidated Financial Statements for more information related to our debt balances.

Loss on Early Extinguishment of Debt

The loss on early extinguishment of debt during the three and six months ended June 30, 2022 resulting from the redemption of our $500 million 2.9% senior notes due September 2022 in advance of their maturity was immaterial.

In May 2021, WMI issued $950 million of senior notes.

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 through a tender offer.

The loss on early extinguishment of debt for the three and six months ended June 30, 2021 includes $220 million of charges related to the tender offer, including $211 million of premiums and other third-party costs and $9 million primarily related to unamortized discounts and debt issuance costs.

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 $211 million of premiums and other third-party costs and $9 million primarily related to unamortized discounts and debt issuance costs.

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of $17 million and $32 million during the three and six months ended June 30, 2022, respectively, compared to $11 million and $20 million for the three months and six months ended June 30, 2021, respectively.

We recognized equity in net losses of unconsolidated entities of $17 million and $49 million during the three and nine months ended September 30, 2022, respectively, compared to $14 million and $34 million for the three months and nine months ended September 30, 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.

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Income Tax Expense

Our income tax expense was $189 million and $346 million for the three and six months ended June 30, 2022, respectively, compared to $105 million and $229 million for the three and six months ended June 30, 2021, respectively.

Our effective income tax rate was 24.3% and 23.9% for the three and six months ended June 30, 2022, respectively, compared to 22.9% and 22.8% for the three and six months ended June 30, 2021, respectively.

The increase in our income tax expense and effective income tax rate when comparing the three and six months ended June 30, 2022 and 2021 was primarily driven by an increase in pre-tax income in 2022, resulting in a decreased rate benefit from federal income tax credits.

Our income tax expense was $189 million and $535 million for the three and nine months ended September 30, 2022, respectively, compared to $167 million and $396 million for the three and nine months ended September 30, 2021, respectively.

Our effective income tax rate was 22.8% and 23.5% for the three and nine months ended September 30, 2022, respectively, compared to 23.7% and 23.2% for the three and nine months ended September 30, 2021, respectively.

The increase in our income tax expense when comparing the three and nine months ended September 30, 2022 and 2021 was primarily driven by an increase in pre-tax income in 2022.

The decrease in our effective income tax rate when comparing the three months ended September 30, 2022 and 2021 was primarily driven by an unfavorable adjustment to accruals and related deferred taxes in 2021 due to a change from our initial expectations of the tax effects of our acquisition of Advanced Disposal and related divestitures.

The decrease was offset in part by the divestiture of certain non-strategic Canadian operations in 2021, which was not taxable and did not reoccur in the current period, and an increase in pre-tax income in 2022 resulting in a reduced rate benefit from federal tax credits.

The increase in our effective income tax rate when comparing the nine months ended September 30, 2022 and 2021 was primarily driven by an increase in pre-tax income in 2022 resulting in a reduced rate benefit from federal tax credits.

Tax Legislation – The Inflation Reduction Act of 2022 (“IRA”) was signed into law by President Biden on August 16, 2022 and contains a number of tax-related provisions.

We are in the process of evaluating the IRA and identifying all potential impacts that may be applicable.

The provisions of the IRA related to alternative fuel tax credits secure approximately $55 million of annual benefit from tax credits through 2024, which is in line with the benefit we have realized from our alternative fuel tax credits in prior years.

Additionally, we expect to incur an excise tax of 1% for future common stock repurchases, which will be reflected in the cost of purchasing the underlying shares as a component of treasury stock.

The IRA contains a number of additional provisions related to tax incentives for investments in renewable energy production, carbon capture, and other climate actions, as well as the overall measurement of corporate taxes.

Given the complexity and uncertainty around the applicability of the legislation to our specific facts and circumstances, we have not yet quantified any incremental benefits included in the legislation.

See Note 4 to the Condensed Consolidated Financial Statements for more information related to income taxes.

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

September 30,

Cash and cash equivalents

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Long-term portion

(a) As of June 30, 2022 and December 31, 2021, $80 million of these account balances was included in other current assets in our Condensed Consolidated Balance Sheets.

Cash and cash equivalents — Cash and cash equivalents at June 30, 2022 include proceeds from borrowings under our Term Loan and from the May 2022 issuance of senior notes, which were partially offset by the redemption of our $500 million 2.9% senior notes due September 2022 in advance of their scheduled maturity, discussed further in Note 3 to the Condensed Consolidated Financial Statements.

Debt — As of June 30, 2022, we had approximately $2.4 billion of debt maturing within the next 12 months, including (i) $1.0 billion of short-term borrowings under our commercial paper program (net of related discount on issuance);

(a) As of September 30, 2022 and December 31, 2021, $83 million and $80 million, respectively, of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

Debt — As of September 30, 2022, we had approximately $2.2 billion of debt maturing within the next 12 months, including (i) $839 million of short-term borrowings under our commercial paper program (net of related discount on issuance);

(ii) $625 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 2.4% senior notes that mature in May 2023 and (iv) $258 million of other debt with scheduled maturities within the next 12 months, including $136 million of tax-exempt bonds.

As of June 30, 2022, we have classified $2.1 billion of debt maturing in the next 12 months as long term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S.

As of September 30, 2022, we have classified $2.0 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 $258 million of debt maturing in the next 12 months is classified as current obligations.

Additionally, as of June 30, 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.

Additionally, as of September 30, 2022, we also had $54 million of variable-rate tax-exempt bonds with long-term scheduled maturities that are 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.

All recent variable-rate tax-exempt bond remarketings have been successful at market-driven rates.

However, if the remarketing agent is unable to remarket our bonds, the remarketing agent can put the bonds to us.

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We used the net proceeds to redeem our $500 million of 2.9% senior notes due September 2022 in advance of their scheduled maturity, to repay a portion of outstanding borrowings under our commercial paper program and for general corporate purposes.

In May 2022, we entered into a Term Loan to be used for general corporate purposes and as of June 30, 2022, we had $1.0 billion of outstanding borrowings.

In May 2022, we entered into a Term Loan to be used for general corporate purposes and as of September 30, 2022, we had $1.0 billion of outstanding borrowings.

WM Holdings guarantees all of the obligations under the Term Loan.

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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):

September 30,

Balance Sheet Information:

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(a) The amount reported as Advances due to affiliates as of December 31, 2021 was understated in our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequently corrected in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

Income Statement Information:

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Summary of Cash Flow Activity

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

Six Months Ended

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

Nine Months Ended

September 30,

Net cash provided by operating activities

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Net cash used in financing activities

Net Cash Provided by Operating Activities — Our operating cash flows increased by $142 million as compared with the prior year period, as a result of an increase in earnings attributable to our collection and disposal, recycling and WM Renewable Energy 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 income tax payments and higher annual incentive compensation payments in the current year period.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the six months ended June 30, 2022 and 2021 are summarized below:

● Capital Expenditures — We used $968 million and $666 million for capital expenditures during the six months ended June 30, 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 growth projects.

Net Cash Provided by Operating Activities — Our operating cash flows increased by $140 million as compared with the prior year period.

The increase was largely driven by increased earnings in our collection and disposal, recycling and WM Renewable Energy lines of business for the nine months ended September 30, 2022.

We also experienced lower interest payments due to timing and refinancing activities in 2021 that reduced our overall interest rate.

Partially offsetting our increase in cash from operating activities were (i) timing differences on payments of certain trade accounts payables;

(ii) higher income tax payments as a result of higher earnings in the current year period;

(iii) higher annual incentive compensation payments in the current year period and (iv) lower alternative fuel tax credit benefits in the current year period.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the nine months ended September 30, 2022 and 2021 are summarized below:

● Capital Expenditures — We used $1,725 million and $1,130 million for capital expenditures during the nine months ended September 30, 2022 and 2021, respectively.

The increase in capital spending is primarily driven by our intentional investment in sustainability growth projects as well as timing differences in our fixed asset purchases to support our ongoing operations.

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.

● Other, Net — During the six months ended June 30, 2022 and 2021, we used $60 million and $56 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities within our investment portfolio associated with a wholly-owned insurance captive.

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 six months ended June 30, 2022 and 2021 are summarized below:

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

● Other, Net —During the nine months ended September 30, 2022, we used $57 million to fund secured convertible promissory notes associated with a pending acquisition and $28 million to make an initial cash payment associated with a new low-income housing investment.

During the nine months ended September 30, 2022 and 2021, we used $36 million and $42 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities within our investment portfolio associated with a wholly-owned insurance captive.

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, 2022 and 2021 are summarized below:

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

Commercial paper

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

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

● Common Stock Repurchase Program — During the six months ended June 30, 2022, we repurchased $524 million of our common stock, consisting of $500 million pursuant to two accelerated share repurchase (“ASR”) agreements and $24 million repurchased in open market transactions, of which $4 million was paid in July 2022.

● 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.

● Common Stock Repurchase Program — During the nine months ended September 30, 2022, we repurchased $1.0 billion of our common stock pursuant to three accelerated share repurchase (“ASR”) agreements and repurchased $63 million of our common stock in open market transactions, of which $2 million was paid in October 2022.

See Note 11 to the Condensed Consolidated Financial Statements for additional information.

During the six months ended June 30, 2021, we repurchased $500 million of our common stock pursuant to two ASR agreements.

During the nine months ended September 30, 2021, we repurchased $1.0 billion of our common stock pursuant to three ASR agreements.

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

We paid cash dividends of $544 million and $489 million during the six months ended June 30, 2022 and 2021, respectively.

We paid cash dividends of $811 million and $730 million during the nine months ended September 30, 2022 and 2021, respectively.

The increase in dividend payments is primarily due to our quarterly per share dividend increasing from $0.575 in 2021 to $0.65 in 2022.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities

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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 half of 2022.

We are taking proactive steps to recover and/or mitigate inflationary cost pressures through our overall strategic pricing efforts and by managing our costs through efficiency, labor productivity and investments in technology to automate certain aspects of our business.

A significant portion of our

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.

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 periods 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 continued inflation as well as the relatively low inflationary cost environment of the first half of 2021, such timing lag persists.

Throughout 2022, many of these contract lookback provisions began to capture the inflationary cost increases experienced since the second half of 2021 in the price escalation calculation;

however, such timing lag persists and will continue to restrict our ability to address proactively future rapid cost increases for those contracts.

Quantitative and Qualitative Disclosures About Market Risk.

Information about market risks as of June 30, 2022 does not materially differ from that discussed under Item 3 in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

Information about market risks as of September 30, 2022 does not materially differ from that discussed under Item 3 in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

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