What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-26 · 151 added, 120 removed, 309 unchanged (47% of the section changed)

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This Quarterly Report on Form 10-Q contains certain forward-looking statements that are made subject to the safe harbor protections provided by the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend,” and words of a similar nature and include estimates or projections of financial and other data;

Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “target,” “plan,” “forecast,” “project,” “estimate,” “intend,” “commit,” “potential,” and words of a similar nature and include estimates or projections of financial and other data;

comments on expectations relating to future periods;

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failure to identify acquisition targets, consummate and integrate acquisitions;

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

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

increasing attention to sustainability matters and heightened scrutiny of sustainability measurements, objectives and disclosures, which could lead to increased litigation risk related to our sustainability efforts;

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

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

Additionally, we are a leading recycler in the U.S.

Additionally, we are a leading recycler

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.

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.

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

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

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

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

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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.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we published our 2022 Sustainability Report providing details on our ESG performance and outlining new 2030 ESG goals.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we

published our 2023 Sustainability Report providing details on our environmental, social and governance (“ESG”) performance and outlining progress towards our 2030 ESG goals.

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 WM Renewable Energy businesses.

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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.

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 continue to 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 have impacted our results.

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

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.

With the significant decline in commodity prices that started in the second half of 2022 and has 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.

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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.

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 second quarter of 2023, we continued to focus on our priorities to advance our strategy—growing price to offset cost inflation, enhancing employee engagement, permanently reducing our cost to serve 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 during the second quarter of 2023.

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

During the third quarter of 2023, we continued to focus on our priorities to advance our strategy—growing price to offset cost inflation, enhancing employee engagement, permanently reducing our cost to serve 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 during the third quarter of 2023.

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

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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 second quarter of 2023, we allocated $520 million of available cash to capital expenditures and $553 million to our shareholders through dividends and common stock repurchases.

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

During the third quarter of 2023, we allocated $673 million of available cash to capital expenditures and $653 million to our shareholders through dividends and common stock repurchases.

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

● Revenues of $5,198 million, compared with $5,075 million in the prior year period, an increase of $123 million, or 2.4%.

The increase is primarily attributable to (i) higher yield in our collection and disposal business and (ii) acquisitions, net of divestitures.

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

(ii) acquisitions, net of divestitures and (iii) increased volumes.

These increases were partially offset by commodity price declines in our recycling and WM Renewable Energy businesses and decreased revenue from our energy surcharge program as a result of a decline in the price of fuel, particularly diesel;

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● Selling, general and administrative expenses were $470 million, or 9.0% of revenues, compared with $473 million, or 9.3% of revenues, in the prior year period.

The $20 million decrease is primarily attributable to (i) lower annual incentive compensation costs and (ii) reduced professional fees in connection with investments in our digital platform, as certain strategic digital projects have now been implemented.

These decreases were offset, in part, by increased litigation costs and annual merit increases;

The 30 basis point improvement was due to the increase in operating revenues and managing expenses through intentional steps to rationalize costs in corporate functions;

● Income from operations was $1,021 million, or 19.6% of revenues, compared with $942 million, or 18.6% of revenues, in the prior year period.

The improved earnings in the current quarter are driven by growth in our collection and disposal businesses and reduced selling, general and administrative expenses;

The improved earnings in the current quarter are driven by higher earnings attributable to our collection and disposal business partially offset by (i) reduced profitability in our WM Renewable Energy business due to lower energy prices and (ii) the decline in recycling commodity prices affecting profitability in our recycling business;

● Net income attributable to Waste Management, Inc.

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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 $1,030 million compared with $1,047 million in the prior year period, with the decrease driven by higher income tax and interest payments.

This decrease was partially offset by (i) increased earnings attributable to our collection and disposal business and (ii) favorable changes in working capital, net of effects of acquisitions and divestitures;

● Net cash provided by operating activities was $1,263 million compared with $1,182 million in the prior year period, with the increase driven by (i) higher earnings attributable to our collection and disposal business and (ii) favorable changes in working capital, net of effects of acquisitions and divestitures.

This increase was partially offset by higher interest and income tax payments;

● Free cash flow was $612 million compared with $432 million in the prior year period.

The increase in free cash flow is primarily attributable to (i) lower capital spending and (ii) higher proceeds from divestitures of businesses and other assets, which were partially offset by lower net cash provided by operating activities described 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.

The increase in free cash flow is primarily attributable to (i) the increase in net cash provided by operating activities discussed above;

(ii) lower capital spending and (iii) higher proceeds from divestitures of businesses and other assets.

flow is a non-GAAP measure of liquidity.

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

Results of Operations

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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 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.

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Other collection

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September 30, 2023 vs.

Period-to-Period Change for the

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Collection and disposal

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Total collection

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Our overall pricing efforts are focused on keeping pace with these higher costs.

We experienced average yield growth in our collection line of business of 6.6% and 6.9% for the three and six months ended June 30, 2023, respectively.

We are also continuing to see growth in our disposal business with our municipal solid waste business experiencing average yield of 6.0% and 5.8% for the three and six months ended June 30, 2023, respectively.

Recycling and WM Renewable Energy — The downturn in market prices for recycling commodities that started in the second half of 2022 persisted in the first half of 2023.

Decreases in the market prices for recycling commodities resulted in a revenue decline of $126 million and $248 million for the three and six months ended June 30, 2023, respectively, as compared with the prior year periods.

Average market prices for single-stream recycled commodities were down about 55% in the first half of 2023 when compared to the first half of 2022.

We experienced average yield growth in our collection line of business of 5.8% and 6.5% for the three and nine months ended September 30, 2023, respectively.

We are also continuing to see growth in our disposal business with our municipal solid waste business experiencing average yield of 4.1% and 5.0% for the three and nine months ended September 30, 2023, respectively.

Recycling and WM Renewable Energy — The downturn in market prices for recycling commodities that started in the second half of 2022 has persisted in 2023.

Decreases in the market prices for recycling commodities resulted in a revenue decline of $91 million and $339 million for the three and nine months ended September 30, 2023, respectively, as compared with the prior year periods.

Average market prices for single-stream recycled commodities were down more than 50% in the first nine months of 2023 when compared to the comparable prior year period.

The decrease is due to the slowdown in the global economy which reduced retail demand and the corresponding need for cardboard packaging to ship retail goods.

Additionally, revenue in our WM Renewable Energy business declined $24 million and $43 million for the three and six months ended June 30, 2023, respectively, as compared to the prior year periods, primarily driven by decreases in the value of renewable fuel standard credits and lower electricity and natural gas prices.

Energy Surcharge and Mandated Fees — These fees decreased $60 million and $16 million for the three and six months ended June 30, 2023, respectively, as compared with the prior year periods.

Additionally, revenue in our WM Renewable Energy business declined $17 million and $60 million for the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods, primarily driven by decreases in the value of energy prices and renewable fuel standard credits.

Energy Surcharge and Mandated Fees — These fees decreased $54 million and $70 million for the three and nine months ended September 30, 2023, respectively, as compared with the prior year periods.

Beginning in the second quarter of 2023, our energy surcharge was revised to incorporate market prices for both diesel and CNG.

The decrease in energy surcharge revenues is primarily due to a decline of approximately 30% and 15% in market prices for diesel fuel for the three and six months ended June 30, 2023, respectively, as compared with the prior year periods.

The decrease in energy surcharge revenues is primarily due to a decline of approximately 15% in market prices for diesel fuel for the three and nine months ended September 30, 2023, respectively, as compared with the prior year periods.

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

These amounts have not significantly impacted the change in revenue for the three and six months ended June 30, 2023, as compared with the prior year periods.

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $9 million, or 0.2%, and $64 million, or 0.7%, for the three and six months ended June 30, 2023, respectively.

These results reflect increases in municipal solid waste volumes at our landfills and an increase in WMSBS volumes, which were partially offset by lower event-driven volumes and the intentional shedding of low-margin residential collection business.

These amounts have not significantly impacted the change in revenue for the three and nine months ended September 30, 2023, as compared with the prior year periods.

Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $27 million, or 0.5%, and $94 million, or 0.6%, for the three and nine months ended September 30, 2023, respectively.

These results reflect increases in special waste volumes at our landfills, primarily due to event-driven projects, and an increase in WMSBS volumes, which were partially offset by a decrease in temporary industrial collection volumes and the intentional shedding of low-margin residential collection business.

Operating Expenses

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

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 increases and proactive market wage adjustments to hire and retain talent;

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

(ii) increased headcount primarily from acquisitions and (iii) increases in health and welfare costs and 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 primarily driven by (i) inflationary cost increases for parts, supplies and third-party services, although the impact of such inflationary cost increases moderated in the current quarter;

(ii) labor cost increases for our technicians, including additional headcount, market wage adjustments and merit increases and (iii) supply chain constraints which delayed fleet deliveries.

Subcontractor Costs — The increase in subcontractor costs was primarily due to (i) inflationary cost increases, particularly labor and fuel costs from third-party haulers, although the impact of such inflationary cost increases moderated in the current quarter due to lower diesel prices that reduced fuel surcharges from our third-party transportation providers, 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 approximate 55% decrease in single-stream recycling commodity prices for the three and six months ended June 30, 2023, as compared with the prior year periods.

Fuel — The decrease in fuel costs was primarily due to a decrease of approximately 30% and 15% in market prices for diesel fuel during three and six months ended June 30, 2023, respectively, as compared to the prior year periods.

decrease is also due to the timing of benefits from federal natural gas fuel tax credits.

These credits have been recognized ratably in 2023.

However, the federal natural gas fuel tax credits were not provided for by regulation until the third quarter of 2022 and thus no benefit was recognized during the first half of 2022.

These increases were offset, in part, by lower annual incentive compensation.

Maintenance and Repairs — The increase in maintenance and repairs costs was primarily driven by (i) continued inflationary cost increases for parts, supplies and third-party services, although the impact of such inflationary cost increases has progressively moderated from earlier in the year to the third quarter of 2023 and (ii) labor cost increases for our technicians, including additional headcount, market wage adjustments and merit increases.

Through the first half of 2023, our maintenance and repairs costs were also elevated due to supply chain constraints that were causing delays in truck deliveries.

These constraints have moderated and, accordingly, the pressure on maintenance and repairs costs has lessened in the third quarter of 2023.

Subcontractor Costs — The increase in subcontractor costs was primarily due to (i) continued inflationary cost increases, particularly labor and fuel costs from third-party haulers, although the impact of such inflationary cost increases has progressively moderated from earlier in the year to the third quarter of 2023 due to lower diesel prices that reduced fuel surcharges from our third-party transportation providers 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 approximate 40% and 50% decrease in single-stream recycling commodity prices for the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods.

Fuel — The decrease in fuel costs was primarily due to a decrease of approximately 15% in market prices for diesel fuel during the three and nine months ended September 30, 2023, as compared to the prior year periods.

In the third quarter of 2022, we recognized a $26 million catch-up benefit from the extension of alternative fuel tax credits that was retroactive to January 1, 2022.

In 2023, these alternative fuel tax credits have been recognized ratably throughout the year.

Accordingly, the timing of the regulatory decision in 2022 impacts the comparison of our fuel costs for the three months ended September 30, 2023 and the comparable prior year period, but has no impact on the comparability of the year-to-date periods.

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes was primarily driven by an increase in landfill volumes and an overall rate increase in fees and taxes paid to municipalities on our disposal volumes.

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

Within landfill operating costs, accretion expense was $32 million and $65 million for the three and six months ended June 30, 2023, respectively, compared with $27 million and $55 million, for the comparable prior year periods.

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.

Landfill Operating Costs — Landfill operating costs increased for the three months ended September 30, 2023, as compared with the prior year period, primarily due to higher costs for landfill accretion and site monitoring and testing.

The increase for the nine months ended September 30, 2023, as compared with the prior year period, was primarily due to higher expenses for (i) landfill site costs, including costs for leachate collection and treatment, maintenance, and monitoring and testing;

(ii) landfill accretion and (iii) remediation expense.

Within landfill operating costs, accretion expense was $32 million and $97 million for the three and nine months ended September 30, 2023, respectively, compared with $30 million and $84 million, for the comparable prior year periods.

The increase in remediation expense for the nine months ended September 30, 2023, as compared with the prior year period, was primarily due to changes in the measurement of our environmental remediation obligations and recovery assets in both 2023 and 2022.

Our measurement of these balances includes the application of a risk-free discount rate, which is based on the rate for U.S.

Treasury bonds.

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 — During the first half of 2022 our claims costs for our risk management program were elevated due to unfavorable cost development on a limited population of severe cases.

The absence of these costs is the driver to the favorable variance for the first half of 2023 compared to the prior year.

An overall increase in insurance premiums partially offset this cost improvement.

Other — Other operating costs increased primarily due to (i) inflationary cost pressures, although the impact of such inflationary cost increases moderated in the current quarter;

(ii) higher equipment rental costs, due to supply chain constraints which delayed fleet deliveries;

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

These increases were partially offset by net gains on the sale of certain assets.

During the nine months ended September 30, 2022, the increases in the discount rate were greater than the increase experienced in the third quarter of 2023, which contributed to an increase in remediation expense between the comparable periods.

Any increase in discount rate results in a reduction in the net liability and a credit to expense.

Risk Management — The decrease in risk management for the three and nine months ended September 2023, as compared with the prior year periods, was primarily due to lower claims expense.

An overall increase in insurance premiums partially offset this cost decrease.

Our claims costs for our risk management program were particularly elevated during the first half of 2022 due to unfavorable cost development on a limited population of severe cases.

The absence of these costs is the largest driver of the favorable variance for the nine months ended September 2023 compared to the prior year.

Other — Other operating costs decreased for the three months ended September 30, 2023, as compared with the prior year period, primarily due to a write down of assets and inventory related to Hurricane Ian during the third quarter of 2022 and net gains on the sale of certain assets during the third quarter of 2023.

These decreases were offset, in part, by (i) inflationary cost pressures, although the impact of such continued inflationary cost increases has progressively moderated from earlier in the year to the third quarter of 2023 and (ii) higher utility costs at our facilities.

In addition to the foregoing, other operating cost increases for the nine-month period ended September 30, 2023 were primarily due to an increase in business travel and higher equipment rental costs.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses have decreased primarily due to lower annual incentive compensation costs and 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 litigation costs and annual merit increases.

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.

Partially offsetting these reductions are annual merit increases and increased litigation costs.

The effective management of 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:

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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 increase in other expenses was primarily related to litigation costs during the second quarter of 2023 and higher advertising costs, which were partially offset by lower technology spend and telecommunications costs.

Provision for Bad Debts — The increase in provision for bad debts during the three months ended September 30, 2023, as compared with the prior year period, is primarily related to an increase in the aging of certain receivables as well as customer-specific provisions required for bankruptcies of two of our WMSBS customers.

Other —The increase in other expenses was primarily related to litigation costs and higher advertising costs, which were partially offset by lower telecommunications costs.

Depreciation, Depletion and Amortization Expenses

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Amortization of intangible assets

The increase in depreciation of tangible property and equipment, was primarily driven by additional depreciation due to investments in capital assets, including strategic investments in our digital platform and machinery and containers to service our customers.

The increase in depletion of landfill airspace during the first half of 2023, as compared with the prior year period, was primarily driven by increased volumes from the reopening of a previously closed landfill in our East Tier.

The increase in depreciation of tangible property and equipment for the three months ended September 30, 2023 was primarily driven by additional depreciation due to investments in capital assets to service our customers, including machinery and trucks.

The increase in depreciation of tangible property and equipment for the nine months ended

September 30, 2023 was primarily driven by additional depreciation due to investments in capital assets, including strategic investments in our digital platform and machinery and containers to service our customers.

The increase in depletion of landfill airspace for the three and nine months ended September 30, 2023 was primarily driven by increased volumes from the reopening of a previously closed landfill in our East Tier.

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

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

(Gain) loss from divestitures, asset impairments and unusual items, net for the nine months ended September 30, 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.

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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 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.

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

The significant items affecting income from operations for our segments during the three and six months ended June 30, 2023, 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 business driven by yield 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 Inflation Reduction Act of 2022 (“IRA”).

The significant items affecting income from operations for our segments during the three and nine months ended September 30, 2023, 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 business driven by yield.

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

(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 electricity and natural gas prices and (ii) the decline in recycling brokerage commodity prices affecting profitability in our recycling business.

(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.

In addition, fuel tax credits in 2022 were not recognized until August 2022 due to the timing of the Inflation Reduction Act of 2022 (“IRA”).

This created a $26 million negative impact to income from operations for the three months ended September 30, 2023, but is broadly flat for the nine months ended September 30, 2023.

● Other — The decrease in income from operations was due to (i) reduced profitability in our WM Renewable Energy business primarily driven by decreases in the value of energy prices and renewable fuel standard credits and (ii) the decline in recycling brokerage commodity prices affecting profitability in our recycling business.

● Corporate and Other — The improvement in income from operations was primarily driven by (i) lower annual incentive compensation costs;

(ii) lower professional fees in connection with investments in our digital program, as certain strategic projects have now been implemented and (iii) 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 lower costs were partially offset by annual merit increases and market adjustments for deferred compensation plans related to investment performance.

These lower costs were partially offset by annual merit increases and litigation costs.

Interest Expense , Net

Our interest expense, net was $125 million and $245 million for the three and six months ended June 30, 2023, respectively, compared to $93 million and $178 million for the three and six months ended June 30, 2022, respectively.

The increase is primarily related to an increase in average debt balances to fund growth as well as an increase in our weighted average borrowing rates for the three and six months ended June 30, 2023, as compared to the prior year periods, of approximately 90 and 100 basis points, respectively, due to increased rates on floating-rate debt.

Our interest expense, net was $127 million and $372 million for the three and nine months ended September 30, 2023, respectively, compared to $91 million and $269 million for the three and nine months ended September 30, 2022, respectively.

The increase is primarily related to an increase in our weighted average borrowing rate of approximately 90 basis points due to increased rates on floating-rate debt and higher fixed rates on refinancing as well as an increase in average debt balances to fund growth.

To mitigate the impact of increasing interest rates and to provide certainty in cost, we elected to replace certain floating-rate debt, specifically our Term Loan and commercial paper borrowings, with longer-term, fixed-rate debt through our senior notes issuances as discussed within Liquidity and Capital Resources below.

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

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of $12 million and $23 million during the three and six months ended June 30, 2023, respectively, compared to $17 million and $32 million for the three months and six months ended June 30, 2022, respectively.

We recognized equity in net losses of unconsolidated entities of $18 million and $41 million during the three and nine months ended September 30, 2023, respectively, compared to $17 million and $49 million for the three months and nine months ended September 30, 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 further in Note 4 to the Condensed Consolidated Financial Statements.

We generate tax benefits, including tax credits, from the losses incurred from these investments.

The losses are more than offset by the tax benefits generated by these investments as further discussed in Note 4 to the Condensed Consolidated Financial Statements.

Income Tax Expense

Our income tax expense was $196 million and $360 million for the three and six months ended June 30, 2023, respectively, compared to $189 million and $346 million for the three and six months ended June 30, 2022, respectively.

Our effective income tax rate was 24.2% and 23.9% for the three and six months ended June 30, 2023, respectively, compared to 24.3% and 23.9% for the three and six months ended June 30, 2022, respectively.

Our income tax expense was $210 million and $570 million for the three and nine months ended September 30, 2023, respectively, compared to $189 million and $535 million for the three and nine months ended September 30, 2022, respectively.

Our effective income tax rate was 24.1% and 24.0% for the three and nine months ended September 30, 2023, respectively, compared to 22.8% and 23.5% for the three and nine months ended September 30, 2022, respectively.

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

Tax Legislation — The IRA was signed into law by President Biden on August 16, 2022, and contains a number of tax-related provisions.

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

See Note 11 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.

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

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

Additionally, numerous countries have agreed to a statement in support of the Organization for Economic Co-operation and Development model rules that propose a global minimum tax rate of 15%.

As legislation to enact a minimum tax becomes effective in countries in which we do business, we do not expect a material impact to our income taxes.

We will continue to monitor pending legislation and implementation by individual countries and evaluate the potential impact on our business in future periods.

Liquidity and Capital Resources

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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, 2023 and December 31, 2022, $80 million and $83 million, respectively, of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

Debt — As of June 30, 2023, we had approximately $3.6 billion of debt maturing within the next 12 months, including (i) $1.3 billion of short-term borrowings under our commercial paper program (net of related discount on issuance);

$1.0 billion Term Loan maturing May 2024;

(iii) $983 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities;

(iv) $156 million of 3.5% senior notes that mature in May 2024 and (v) $172 million of other debt with scheduled maturities within the next 12 months, including $55 million of tax-exempt bonds.

As of June 30, 2023, we have classified $3.1 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.

(a) As of September 30, 2023 and December 31, 2022, $80 million and $83 million, respectively, of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets.

Debt — As of September 30, 2023, we had approximately $2.4 billion of debt maturing within the next 12 months, including (i) $489 million of short-term borrowings under our commercial paper program (net of related discount on issuance);

(ii) $1.6 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities;

(iii) $156 million of 3.5% senior notes that mature in May 2024 and (iv) $174 million of other debt with scheduled maturities within the next 12 months, including $60 million of tax-exempt bonds.

As of September 30, 2023, 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.

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

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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 reduce outstanding borrowings under our commercial paper program, repay $500 million of WMI’s 2.4% senior notes upon maturity in May 2023, and for general corporate purposes, including our sustainability capital investment program.

We used the net proceeds to reduce outstanding

borrowings under our commercial paper program, repay $500 million of WMI’s 2.4% senior notes upon maturity in May 2023, and for general corporate purposes, including our sustainability capital investment program.

In July 2023, WMI issued $750 million and $1.25 billion of 4.875% senior notes due February 2029 and February 2034, respectively, the net proceeds of which were $1.97 billion.

We used the net proceeds to reduce outstanding borrowings under our commercial paper program, repay $1.0 billion of outstanding borrowings under our Term Loan and for general corporate purposes.

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,

Balance Sheet Information:

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Other noncurrent liabilities

Six Months Ended

June 30, 2023

Nine Months Ended

September 30, 2023

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):

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

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 decreased by $231 million as compared with the prior year period, driven by (i) unfavorable changes in working capital, net of effects of acquisitions and divestitures;

(ii) higher interest payments;

Net Cash Provided by Operating Activities — Our operating cash flows decreased by $150 million as compared with the prior year period, driven by (i) higher interest payments;

(ii) unfavorable changes in working capital, net of effects of acquisitions and divestitures;

(iii) higher incentive compensation payments and (iv) higher income tax payments.

This decrease was partially offset by increased earnings attributable to our collection and disposal business.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the six months ended June 30, 2023 and 2022 are summarized below:

● Capital Expenditures — We used $1,180 million and $968 million for capital expenditures during the six months ended June 30, 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 inflationary increases in many fixed asset purchases made to support ongoing operations and intentional investments in the Company’s landfills to reduce greenhouse gas emissions.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the nine months ended September 30, 2023 and 2022 are summarized below:

● Capital Expenditures — We used $1,853 million and $1,725 million for capital expenditures during the nine months ended September 30, 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 inflationary increases in many fixed asset purchases made to support ongoing operations and intentional investments in the Company’s landfills to reduce greenhouse gas emissions.

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 six months ended June 30, 2023 and 2022, we used $76 million and $60 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 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, 2023 and 2022 are summarized below:

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

During the nine months ended September 30, 2023 and 2022, we used $71 million and $36 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, in 2022, we used $57 million to fund secured convertible promissory notes associated with an acquisition and $28 million 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 nine months ended September 30, 2023 and 2022 are summarized below:

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

Commercial paper

Senior notes (a)

Tax-exempt bonds

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Net cash borrowings

(a) We used the net proceeds of our senior notes issued in February 2023 of $1.24 billion to reduce outstanding borrowings under our commercial paper program, repay $500 million of WMI’s 2.4% senior notes upon maturity in May 2023, and for general corporate purposes, including our sustainability capital investment program.

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

● Common Stock Repurchase Program — During the six months ended June 30, 2023, we repurchased $600 million of our common stock pursuant to two accelerated share repurchase (“ASR”) agreements and repurchased $22 million of our common stock in open market transactions, of which $2 million was paid in July 2023.

● Common Stock Repurchase Program — During the nine months ended September 30, 2023, we repurchased $950 million of our common stock pursuant to three accelerated share repurchase (“ASR”) agreements and repurchased $41.5 million of our common stock in open market transactions, of which $1.5 million was paid in October 2023.

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

During the six months ended June 30, 2022, we repurchased $500 million of our common stock pursuant to two ASR agreements and repurchased $24 million of our common stock in open market transactions, of which $4 million was paid in July 2022.

During the nine months ended September 30, 2022, we repurchased $1.0 billion of our common stock pursuant to three ASR agreements and repurchased $63 million of our common stock in open market transactions, of which $2 million was paid in October 2022.

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

We paid cash dividends of $572 million and $544 million during the six months ended June 30, 2023 and 2022, respectively.

We paid cash dividends of $855 million and $811 million during the nine months ended September 30, 2023 and 2022, respectively.

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

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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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Our operating revenues tend to be somewhat higher in summer months, primarily due to higher construction and demolition waste volumes.

The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months.

The volumes of industrial and residential waste in certain regions where we operate also tend

to increase during the summer months.

Our second and third quarter revenues and results of operations typically reflect these seasonal trends.

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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