What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-10-26 · 201 added, 280 removed, 211 unchanged (70% of the section changed)

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They are based on the facts and circumstances known to us as of the date the statements are made.

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

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, automation, growth, and cost savings initiatives and overall business strategy;

failure to obtain the results anticipated from strategic initiatives, investments, acquisitions or new lines of business;

failure to identify acquisition targets, consummate and integrate acquisitions;

failure to obtain the results anticipated from acquisitions;

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

environmental and other regulations, including developments related to emerging contaminants, gas emissions, renewable energy and environmental, social and governance (“ESG”) performance and disclosure;

significant environmental, safety or other incidents resulting in liabilities or brand damage;

failure to obtain and maintain necessary permits;

failure to obtain and maintain necessary permits due to land scarcity, public opposition or otherwise;

diminishing landfill capacity, resulting in increased costs and the need for disposal alternatives;

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

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 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;

increases in labor costs due to union organizing activities or changes in wage and labor related regulations;

disruption and costs resulting from extreme weather and destructive climate events;

failure to achieve our sustainability goals or execute on our sustainability-related strategy and initiatives;

public health risk, increased costs and disruption due to a future resurgence of pandemic conditions and restrictions;

macroeconomic conditions, geopolitical conflict and market disruption resulting in labor, supply chain and transportation constraints, inflationary cost pressures and fluctuations in commodity prices, fuel and other energy costs;

increased competition;

pricing actions;

commodity price fluctuations;

impacts from Russia’s invasion of Ukraine and the resulting geopolitical conflict and international response, including increased risk of cyber incidents and exacerbation of market disruption, inflationary cost pressure and changes in commodity prices, fuel and other energy costs;

international trade restrictions;

disposal alternatives and waste diversion;

declining waste volumes;

weakness in general economic conditions and capital markets;

impacts from international trade restrictions;

competitive disposal alternatives, diversion of waste from landfills and declining waste volumes;

weakness in general economic conditions and capital markets, including potential for an economic recession;

instability of financial institutions;

adoption of new tax legislation;

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failure to develop and protect new technology;

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

failure of technology to perform as expected;

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, 2021.

and 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, 2022 as updated by Part II, Item 1A.

Risk Factors , included in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023.

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.

We are North America’s leading provider of comprehensive environmental solutions, providing services throughout the United States (“U.S.”) and Canada.

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

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

Through our subsidiaries, including our Waste Management Renewable Energy (“WM Renewable Energy”) business, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S.

and Canada that produce renewable electricity and renewable natural gas, which is a significant source of fuel for our natural gas fleet.

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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.

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 “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.

Our senior management evaluates, oversees and manages 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.

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we remain dedicated to providing long-term value to our stockholders by successfully executing our core strategy of focused differentiation and continuous improvement.

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

We have enabled a people-first, technology-led focus to drive our mission to maximize resource value, while minimizing environmental impact, so that both our economy and our environment can thrive.

We have enabled a people-first, technology-led focus to drive our mission to maximize resource value, while minimizing environmental impact, and sustainability and environmental stewardship is embedded in all that we do.

Our strategy leverages and sustains the strongest asset network in the industry to drive best-in-class customer experience and growth.

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We believe that focused differentiation, which is driven by capitalizing on our unique and extensive network of assets, will deliver profitable growth and position us to leverage competitive advantages.

Simultaneously, we believe the combination of cost control and investing in automation to improve processes and drive operational efficiency will yield an attractive total cost structure and enhanced service quality.

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.

Simultaneously, we believe that investing in automation to improve processes and drive operational efficiency combined with a focus on the cost to serve our customer will yield an attractive profit margin and enhanced service quality.

We are furthering our strategy of focused differentiation and continuous improvement beyond our traditional waste operations through our sustainability growth strategy that includes significant planned investments in our WM Renewable Energy and recycling businesses, while increasing automation and reducing labor dependency.

We are also evaluating and pursuing emerging diversion technologies that may generate additional value.

Business Environment

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This includes expanding traditional recycling services, increasing organics collection, and processing, and expanding our renewable energy projects to meet the evolving needs of our diverse customer base.

As the leading waste management environmental services provider in 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.

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.

As North America’s leading provider of comprehensive environmental solutions, we are taking big, bold steps to catalyze positive change – change that will impact our Company as well as the communities we serve.

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.

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Significant components of our operating expenses vary directly as we experience changes in revenue due to volume and a heightened pace of inflation.

Volume changes can fluctuate dramatically by line of business and volume changes in higher margin businesses, such as what we saw with COVID-19, can impact key financial metrics.

Volume changes can fluctuate significantly by line of business and volume changes in higher margin businesses can impact key financial metrics.

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

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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.

Enhancements made through these initiatives 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.

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 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.

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.

Our next and ongoing phase is to prioritize reduced labor dependency on certain high-turnover jobs, particularly in customer experience, recycling and residential collection, while further elevating our customer self-service through digitalization and implementing technologies to enhance the safety, reliability and efficiency of our collection operations.

Additionally, in 2022, we implemented a new general ledger accounting system, complementary finance enterprise resource planning system and a human capital management system, which will drive operational and service excellence by empowering our people through a modern, simplified and connected employee experience.

Macroeconomic pressures, including inflation and rising interest rates, and market disruption, resulting in labor, supply chain and transportation constraints, are continuing.

Significant global supply chain disruption and the heightened pace of inflation have reduced availability and increased costs for the goods and services we purchase, with a particular impact on our repair and maintenance costs, as well as subcontractor costs.

Supply chain constraints have also caused delayed delivery of fleet, steel containers and other purchases.

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

Additionally, 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;

With the significant decline in commodity prices that started in the second half of 2022 and have continued into 2023, we are currently experiencing margin pressures from our commodity-driven businesses, specifically within our recycling and WM Renewable Energy businesses.

While there may be short-term fluctuations in our commodity-driven businesses as prices change, we continue to focus on adjusting our business models to protect against the down-side risk by spreading the inherent risk of changes in commodity prices across the vertically integrated value chain.

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

recessionary fears and/or an economic recession;

size, location, and qualifications of the labor pool;

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adoption of new or revised regulations;

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.

future resurgence of pandemic conditions and restrictions;

geopolitical conflicts and responses and supply and demand for commodities.

As we experience inflationary cost pressures, we focus on our pricing efforts, as well as operating efficiencies and cost controls to maintain our earnings and cash flow and facilitate growth.

With these macroeconomic pressures, we remain committed to putting our people first to ensure that they are well positioned to execute our daily

operations diligently and safely.

We 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 provide operating efficiencies intended to reduce our cost to serve.

Current Quarter Financial Results

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.

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.

During the first quarter of 2023, we continued to focus on our priorities to advance our strategy—enhancing employee engagement, improving our operations through the use of technology and automation, and investing in growth through our recycling and WM Renewable Energy businesses.

This strategic focus, combined with strong operational execution resulted in increased revenue, income from operations and income from operations margin.

We were able to achieve these results despite high inflationary cost pressures.

We remain diligent in offering a competitively profitable service that meets the needs of our customers, and we 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 our team members.

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 third quarter include:

During the first quarter of 2023, we allocated $660 million of available cash to capital expenditures and $639 million to our shareholders through dividends and common stock repurchases.

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

● Revenues of $4,892 million, compared with $4,661 million in the prior year period, an increase of $231 million, or 5.0%.

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

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

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

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

(ii) volume growth;

(iii) increases from our fuel surcharge program and (iv) acquisitions, net of divestitures.

These increases were partially offset by commodity price declines in our recycling and WM Renewable Energy businesses;

● Operating expenses of $3,086 million, or 63.1% of revenues, compared with $2,903 million, or 62.3% of revenues, in the prior year period.

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;

The $183 million increase is primarily attributable to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs and (ii) labor cost pressure from frontline employee market wage adjustments and annual merit increases.

These increases were offset, in part, by commodity-driven business impacts from lower recycling rebates reflected in costs of goods sold;

● Selling, general and administrative expenses were $476 million, or 9.7% of revenues, compared with $491 million, or 10.5% of revenues, in the prior year period.

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

The $15 million decrease is primarily attributable to reduced professional fees in connection with investments in our digital platform, as certain strategic digital projects have now been implemented.

This decrease was offset, in part, by an increase in labor-related costs due to annual merit increases for our employees;

● Income from operations was $825 million, or 16.9% of revenues, compared with $768 million, or 16.5% of revenues, in the prior year period.

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;

The improved earnings in the current quarter are driven by deliberate steps to grow revenue and to reduce selling, general and administrative expense, which offset increases in operating expenses and depreciation, depletion and amortization expenses;

● Net income attributable to Waste Management, Inc.

was $533 million, or $1.30 per diluted share, compared with $513 million, or $1.23 per diluted share, in the prior year period.

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

● 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 higher earnings offset by the effect of increased tax payments and an increase in the number of payroll cycles in the current year period;

The increase in income from operations discussed above, was partially offset by increases in interest expense and income tax expense;

● Net cash provided by operating activities was $1,044 million compared with $1,258 million in the prior year period, with the decrease driven by (i) unfavorable changes in working capital, net of effects of acquisitions and divestitures;

(ii) higher incentive compensation payments and (iii) higher interest payments.

This decrease was partially offset by (i) increased earnings attributable to our collection and disposal business and (ii) lower income taxes in the current period due to timing of payments ;

● Free cash flow was $395 million compared with $845 million in the prior year period.

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.

operations and (ii) a decrease in net cash provided by operating activities as discussed above.

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

Operating Revenues

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 businesses, which include landfill gas-to-energy services, environmental solutions services and recycling brokerage services.

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.

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, 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):

Three Months Ended

Nine Months Ended

September 30,

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

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

(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.

(ii) certain services within our sustainability business including our landfill gas-to-energy operations managed by our WM Renewable Energy business and (iii) certain other expanded service offerings and solutions and 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, 2022 vs.

Period-to-Period Change for the

Nine Months Ended

September 30, 2022 vs.

March 31, 2023 vs.

Collection and disposal

Recycling (c)

Fuel surcharges and other (d)

Recycling and WM Renewable Energy (c)(d)

Fuel surcharges and mandated fees (d)

Total average yield (e)

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

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

(c) Includes combined impact of commodity price variability in both our recycling and WM Renewable Energy businesses, as well as changes in fees in our recycling business.

(d) Beginning in 2023, Recycling and WM Renewable Energy includes changes in our revenue attributable to our WM Renewable Energy business.

Previously these changes in revenue were included in fuel surcharges and mandated fees.

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

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Period-to-Period Change for the

Three Months Ended

Nine Months Ended

September 30, 2022 vs.

March 31, 2023 vs.

Total collection

Total collection and disposal

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 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 $132 million and $375 million for the three and nine months ended September 30, 2022, respectively, as compared with the prior year periods.

Our overall pricing efforts are focused on recovering the cost to service our customers that we experience in our business by increasing our average unit rate.

We experienced strong average yield growth in our collection line of business of 7.2% for the first quarter of 2023.

We are driving improved profitability in our residential line of business to better align the price charged for services we provide to our customers with the costs to provide the services, resulting in increased average yield of 5.6% for the first quarter of 2023.

We are also continuing to see growth in our disposal business with our municipal solid waste business experiencing average yield of 5.4% for the first quarter of 2023.

Recycling and WM Renewable Energy — The downturn in the market prices for recycling commodities in the second half of 2022 continued into the first quarter of 2023.

Decreases in the market prices for recycling commodities resulted in a revenue decline of $122 million for the first quarter of 2023, as compared with the prior year period.

During the first quarter of 2023, average market prices for single-stream recycled commodities were about 60% lower compared to the prior year period, resulting from the slowdown in the global economy which reduced retail demand and the corresponding need for cardboard packaging to ship retail goods.

Additionally, revenue declined $19 million in our WM Renewable Energy business, as compared to the prior year period, primarily driven by decreases in the value of renewable fuel standard credits and lower energy prices.

Fuel Surcharges and Mandated Fees — These fees, which include our fuel surcharge program and other mandated fees, increased $44 million for the first quarter of 2023, 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.

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 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.

These amounts have not significantly impacted the change in revenue for the first quarter of 2023, as compared with the prior year period.

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $55 million, or 1.2%, for the first quarter of 2023, as compared with the prior year period.

Our collection and disposal business volumes grew 1.1% in the first quarter of 2023, as compared with the prior year period, driven by an increase in disposal volumes which was partially offset by a modest decrease in collection volumes.

Volume growth during the first quarter of 2023 was primarily driven by volumes at our landfills as our construction and demolition landfill volumes were favorably impacted by the continued clean-up efforts in our East Tier from Hurricane Ian which occurred in late 2022.

Special waste volumes at our landfills continue to be strong primarily due to higher contributions from 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.

However, these increases have been partially offset by our intentional efforts to reduce unprofitable residential collection volumes.

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

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Risk management

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.

Our operating expenses for the first quarter of 2023 increased, as compared with the first quarter of 2022, primarily due to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs and (ii) labor cost pressure from frontline employee market wage adjustments as well as merit increases.

These increases were offset, in part, by commodity-driven business impacts from lower recycling rebates reflected in costs of goods sold.

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

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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.

(ii) merit increases;

(iii) increased headcount attributable primarily to acquisitions and (iv) 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 primarily due to inflationary cost increases, which includes increased disposal fees at third-party sites and higher rates from our third-party haulers offset, in part, by decreases in residential and commercial 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, which have delayed deliveries of new trucks;

(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 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.

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 disposal volumes.

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.

(ii) additional fleet maintenance driven by delayed deliveries of new trucks due to supply chain constraints and (iii) labor cost increases for our technicians, including additional headcount, market wage adjustments, merit increases and higher overtime.

Subcontractor Costs — The increase in subcontractor costs was primarily due to (i) inflationary cost increases, particularly labor and fuel costs from third-party haulers and (ii) an increase in volumes in our WMSBS business and SES offerings, which rely more extensively on subcontracted hauling and services than our collection and disposal business.

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

Fuel — The slight increase in fuel costs was primarily due to an increase of approximately 3% in market prices for diesel fuel offset, in part, by lower diesel consumption as we expand our compressed natural gas fleet and federal natural gas fuel tax credits.

The federal natural gas fuel tax credits were not retroactively extended until the third quarter of 2022 and thus no benefit was recognized during the first quarter of 2022.

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

Landfill Operating Costs — The increase in landfill operating costs was primarily due to higher costs across our landfills for leachate collection and treatment, site maintenance and landfill accretion.

Additionally, there was a change in the measurement of our environmental remediation obligations and recovery assets during the first quarter of 2022.

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.

In the first quarter of 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 decreased during the first quarter of 2023 primarily due to an increase in claims costs during the first quarter of 2022 driven by 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 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.

(ii) higher equipment rental costs attributable, in part, to supply chain constraints slowing normal course fleet and equipment orders;

(iii) an increase in business travel and (iv) higher utility costs at our facilities.

These increases were offset, in part, by a favorable litigation settlement and net gains on sales of certain assets in the current quarter.

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

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Provision for bad debts

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.

Selling, general and administrative expenses have decreased primarily due to reduced professional fees in connection with investments in our digital platform, as certain strategic digital projects have now been implemented.

Partially offsetting these reductions are increased labor costs primarily due to merit increases and increased payroll taxes and benefits expense.

The decrease in our costs, along with the increase in revenue resulted in a significant reduction in our selling, general and administrative expenses as a percentage of revenues when compared with the prior year period.

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

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”).

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 expense 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,

Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) annual merit increases for our employees and (ii) market adjustments for deferred compensation plans related to investment performance.

These increases were partially offset by lower contract labor expenses.

Professional Fees — The decrease in professional fees was primarily attributable to reduced expenses in connection with investments in our digital platform, as certain strategic projects have now been implemented.

Other — The decrease in other expenses was primarily related to lower telecommunications costs and lower technology spend.

Depreciation, Depletion and Amortization Expenses

The following table summarizes the components of our depreciation, depletion 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

Amortization of landfill airspace

Depletion of landfill airspace

Amortization of intangible assets

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 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.

The increase in depreciation of tangible property and equipment during the first quarter of 2023, as compared with the first quarter of 2022, was primarily driven by additional depreciation due to investments in capital assets, such as strategic investments in our digital platform and containers and trucks to service our customers.

The increase in depletion of landfill airspace during the first quarter of 2023, as compared with the first quarter of 2022, was primarily driven by the reopening of a previously closed landfill in our East Tier.

The increase in amortization of intangible assets during the first quarter of 2023, as compared to the first quarter of 2022, was primarily driven by amortization of acquired intangible assets.

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

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.

(Gain) loss from divestitures, asset impairments and unusual items, net for the first quarter of 2023 were nominal.

During the first quarter of 2022, we recognized a $17 million charge pertaining to reserves for loss contingencies 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.

Income from Operations

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

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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 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;

(ii) elements of our sustainability business that includes landfill gas-to-energy operations managed by our WM Renewable Energy business, our SES business 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.

These support services include, among other things, treasury, legal, digital, tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills.

These support services include, among other things, treasury, legal, digital, tax, insurance,

centralized service center processes, other administrative functions and the maintenance of our closed landfills.

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

(c) In the fourth quarter of 2021, we discontinued certain allocations from our Corporate and Other segment to our Solid Waste operating segments and Other segment.

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

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.

The significant items affecting income from operations for our segments during the first quarter of 2023, 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 business driven by both yield and volume and (ii) fuel tax credits recognized in the current year which were nominal in the prior year period as the majority of our fuel tax credits were not recognized until August 2022 due to the timing of the Inflationary Reduction Act 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.

(ii) labor cost increases from frontline employee wage adjustments and annual merit increases and (iii) reduced profitability in our recycling business from the decline in recycling commodity prices and lower volumes.

Other — The decrease in income from operations was due to (i) reduced profitability in our WM Renewable Energy business due to lower market values for renewable fuel standard credits and lower energy prices and (ii) the decline in recycling brokerage commodity prices affecting profitability in our recycling business.

Corporate and Other — The increase in income from operations was primarily driven by (i) lower annual incentive compensation and (ii) a charge during the first quarter of 2022 to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site.

These were partially offset by an increase in health and welfare costs driven by higher inflation and utilization of employee medical benefits.

Interest Expense, Net

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

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 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.

Our interest expense, net was $120 million and $85 million during the three months ended March 31, 2023 and 2022, respectively.

The increase is primarily related to (i) borrowings in May 2022 under our $1.0 billion two-year, U.S.

term credit agreement (“Term Loan”);

(ii) increases in interest rates on our floating-rate debt, including commercial paper and variable-rate tax-exempt bonds and (iii) the issuance of $1.25 billion of senior notes in February 2023.

Equity in Net Losses of Unconsolidated Entities

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.

We recognized equity in net losses of unconsolidated entities of $11 million and $15 million during the three months ended March 31, 2023 and 2022, 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 which are discussed in Note 4 to the Condensed Consolidated Financial Statements.

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 $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.

Our income tax expense and effective income tax rates were $164 million, or 23.6%, and $157 million, or 23.5%, for the three months ended March 31, 2023 and 2022, respectively.

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

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.

The provisions of the IRA related to alternative fuel tax credits secure approximately $55 million of annual pre-tax benefit (to be recorded as a reduction in our operating expense) from tax credits through 2024, which is in line with the benefit we have realized from our alternative fuel tax credits.

Given the complexity and uncertainty around the applicability of the legislation to our specific facts and circumstances, we continue to analyze the IRA provisions to identify and quantify potential opportunities and applicable benefits included in the legislation.

With respect to only the investment tax credit aspect of the IRA, we expect the cumulative benefit to be between $250 million and $350 million, a large portion of which is anticipated to be realized in 2024, 2025 and 2026.

Additionally,

the production tax credit incentives for investments in renewable energy and the carbon capture provisions of the IRA will likely result in incremental benefit, although at this time the amount of those benefits have not been quantified.

Additionally, we will incur an excise tax of 1% for common stock repurchases, which will be reflected in the cost of purchasing the underlying shares as a component of treasury stock in our Condensed Consolidated Balance Sheet.

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

The current expectation is the minimum corporate tax will not have an impact on the Company.

Liquidity and Capital Resources

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 sustainability growth investments.

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

We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business requirements that may arise during the year.

The Company believes that its investment grade credit ratings, large value of unencumbered assets and modest leverage enable it to obtain adequate financing to meet its ongoing capital, operating, strategic and other liquidity requirements.

The Company believes that its investment grade credit ratings, diverse investor base, large value of unencumbered assets and modest leverage enable it to obtain adequate financing, and refinance upcoming maturities, as necessary to meet its ongoing capital, operating, strategic and other liquidity requirements, despite disruption and challenges that may be presented by recent instability of financial institutions and uncertainty regarding the U.S.

government’s decisions about its debt ceiling, the ultimate impacts of which cannot be predicted at this time.

We also have the additional ability to manage liquidity during periods of significant financial market disruption through temporary modification of our capital expenditure and share repurchase plans.

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):

September 30,

Cash and cash equivalents

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Long-term portion

(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);

(a) As of March 31, 2023 and December 31, 2022, $84 million and $83 million, respectively, of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

As of March 31, 2023, we had approximately $2.3 billion of debt maturing within the next 12 months, including (i) $861 million of short-term borrowings under our commercial paper program (net of related discount on issuance);

(ii) $725 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) $186 million of other debt with scheduled maturities within the next 12 months, including $65 million of tax exempt bonds.

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.

As of March 31, 2023, we have classified $1.9 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 $336 million of debt maturing in the next 12 months is classified as current obligations.

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 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.

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.

In May 2022, WMI issued $1.0 billion of 4.15% senior notes due April 15, 2032, the net proceeds of which were $992 million.

We used the net proceeds to redeem our $500 million of 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 September 30, 2022, we had $1.0 billion of outstanding borrowings.

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

Amendment and Extension of Revolving Credit Facility

In May 2022, we amended and restated our $3.5 billion U.S.

and Canadian revolving credit facility extending the term through May 2027.

The agreement includes a $1.0 billion accordion feature that may be used to increase total capacity in future periods, and we have the option to request up to two one-year extensions.

Waste Management of Canada Corporation and WM Quebec Inc., each an indirect wholly-owned subsidiary of WMI, are borrowers under the $3.5 billion revolving credit facility, and the agreement permits borrowing in Canadian dollars up to the U.S.

dollar equivalent of $375 million, with such borrowings to be repaid in Canadian dollars.

WM Holdings, a wholly-owned subsidiary of WMI, guarantees all the obligations under the $3.5 billion revolving credit facility.

Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information.

In February 2023, WMI issued $750 million and $500 million of 4.625% senior notes due February 2030 and February 2033, respectively, the net proceeds of which were $1.24 billion.

We used the net proceeds to repay a portion of

outstanding borrowings under our commercial paper program and for general corporate purposes, as further discussed in Summary of Cash Flow Activity below.

Guarantor Financial Information

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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,

March 31, 2023

December 31, 2022

Balance Sheet Information:

3 unchanged sentences

Noncurrent liabilities:

Advances due to affiliates (a)

Advances due to affiliates

Other noncurrent liabilities

(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.

Nine Months Ended

September 30, 2022

Three Months Ended

March 31, 2023

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 $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 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):

Net Cash Provided by Operating Activities — Our operating cash flows decreased by $214 million for the three months ended March 31, 2023, as compared with the prior year period, driven by (i) unfavorable changes in working capital, net of effects of acquisitions and divestitures;

(ii) higher incentive compensation payments and (iii) higher interest payments.

This decrease was partially offset by (i) increased earnings attributable to our collection and disposal business and (ii) lower income taxes in the current period due to timing of payments.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the three months ended March 31, 2023 and 2022 are summarized below:

● Capital Expenditures — We used $660 million and $418 million for capital expenditures during the three months ended March 31, 2023 and 2022, respectively.

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

The Company continues to maintain a disciplined focus on capital management to prioritize investments for expansion, the replacement of aging assets and assets that support our strategy of differentiation and continuous improvement through efficiency and innovation.

● 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, 2023 and 2022, we used $85 million and $97 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 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, 2023 and 2022 are summarized below:

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

Commercial paper

Tax-exempt bonds

Senior notes (a)

Commercial paper

Tax-exempt bonds

Net cash borrowings (repayments)

We used the net proceeds of our senior notes issued in February 2023 of $1.24 billion to repay $867 million of outstanding borrowings under our commercial paper program and utilized the remaining $373 million, combined with our net cash provided by operating activities of $1.04 billion, for general corporate purposes including for example, payment of dividends, common stock repurchases and investments in the business through capital expenditures and acquisitions.

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 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.

● Common Stock Repurchase Program — During the three months ended March 31, 2023 and 2022, we used $350 million and $250 million, respectively, to repurchase shares of our common stock under accelerated share repurchase agreements .

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

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 $811 million and $730 million during the nine months ended September 30, 2022 and 2021, respectively.

We paid cash dividends of $289 million and $275 million during the three months ended March 31, 2023 and 2022, respectively.

The increase in dividend payments is primarily due to our quarterly per share dividend increasing from $0.65 in 2022 to $0.70 in 2023.

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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

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Free cash flow

(a) These growth investments are intended to further our sustainability leadership position by increasing recycling volumes and growing renewable natural gas generation.

We expect they will deliver circular solutions for our customers and drive environmental value to the communities we serve.

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

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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 affect the operating results of the geographic areas affected.

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

Extreme weather events may also lead to supply chain disruption and delayed project development, or disruption of our customers’ businesses, reducing the amount of waste generated by their operations.

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

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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 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 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.

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 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.

Macroeconomic pressures, including inflation and rising interest rates and market disruption resulting in labor, supply chain and transportation constraints, are continuing.

Significant global supply chain disruption and the heightened pace of inflation have reduced availability and increased costs for the goods and services we purchase, particularly for repair and maintenance and subcontractor 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 continue to take proactive steps to recover and mitigate inflationary cost pressures through our overall pricing efforts and by managing our costs through efficiency, labor productivity, and investments in technology to automate certain aspects of our business.

These efforts may not be successful for various reasons including the pace of inflation, operating cost inefficiencies, market responses, and contractual limitations, such as the timing lag in our ability to recover increased costs under certain contracts that are tied to a price escalation index with a lookback provision.

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