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Item 7. Management’s Discussion and Analysis

2024-02-13 compared with 2023-02-07 · 320 added, 356 removed, 446 unchanged (60% of the section changed)

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This section includes a discussion of our results of operations for the three years ended December 31, 2023.

This discussion may contain forward-looking statements that anticipate results based on management’s plans that are subject to uncertainty.

We discuss in more detail various factors that could cause actual results to differ materially from expectations in Item 1A.

Risk Factors .

This discussion may contain forward-looking statements.

See “Cautionary Statement about Forward-Looking Statements” in Part I of this Annual Report on Form 10-K for more information.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or anticipated results.

These risks and uncertainties include, but are not limited to, those described in Part I, “Item 1A.

Risk Factors ” and elsewhere in this report and may also be described from time to time in our future reports filed with the U.S.

Securities and Exchange Commission (“SEC”).

The following discussion should be read considering those disclosures and together with the Consolidated Financial Statements and the notes thereto.

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.

Our solid waste business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provide collection, transfer, disposal, recycling and resource recovery services.

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.

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.

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 senior management evaluates, oversees and manages the financial performance of our Solid Waste operations through two operating segments.

To enhance transparency regarding our financial performance, highlight the strength and consistency of our core solid waste businesses, and underscore our commitment to sustainability through planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy businesses, beginning in the fourth quarter of 2023, our senior management revised its segment reporting to (i) reflect the financial results of our collection, transfer, disposal and resource recovery service businesses independently;

(ii) combine the results of all recycling facilities from our East and West Tier segments with our recycling brokerage and sales activities to form a newly created Recycling Processing and Sales reportable segment and (iii) include our WM Renewable Energy business as a reportable segment.

Accordingly, our senior management now evaluates, oversees and manages the financial performance of our business through four reportable segments, referred to as (i) Collection and Disposal East Tier (“East Tier”);

(ii) Collection and Disposal - West Tier (“West Tier”);

(iii) Recycling Processing and Sales and (iv) WM Renewable Energy.

Our East and West Tiers along with certain ancillary services not managed through our Tier segments, but that support our collection and disposal operations, form our “Collection and Disposal” businesses.

Collection and Disposal

Our Collection and Disposal businesses provide integrated environmental services, including collection, transfer, disposal and resource recovery services.

We evaluate our Collection and Disposal businesses primarily through two geographic segments, East Tier and West Tier.

Our East Tier primarily consists of geographic areas located in the Eastern U.S., the Great Lakes region and substantially all of Canada.

Our West Tier primarily includes geographic areas located in the Western U.S., including the upper Midwest region, and British Columbia, Canada.

Each of our Solid Waste operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal.

Our Solid Waste operating revenues are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations.

Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the disposal facility or material recovery facility and our disposal costs.

Additionally, we provide certain ancillary services (“Other Ancillary”) that are not managed through the Tier segments but that support our collection and disposal operations.

Other Ancillary includes specialized services performed for customers that have differentiated needs.

These specialized services are targeted at large industrial customers managed through our Sustainability and Environmental Solutions (“SES”) business or geographically dispersed customers managed through our Strategic Business Solutions (“WMSBS”) business.

Also included within Other Ancillary are the results of non-operating entities that provide financial assurance and self-insurance support for our business, net of intercompany activity.

Our Collection and Disposal businesses’ operating revenues are primarily generated from fees charged for our collection, transfer, disposal and resource recovery services.

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

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

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

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

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

Included within our Collection and Disposal businesses are landfills having (i) 21 third-party power generating facilities converting our landfill gas to fuel electricity generators;

(ii) 14 third-party renewable natural gas (“RNG”) facilities processing landfill gas to be sold to natural gas suppliers and (iii) two third-party projects delivering our landfill gas by pipeline to industrial customers as a direct substitute for fossil fuels in industrial processes.

In return for providing our landfill gas, we receive royalties from each facility, including the benefit of a 15% royalty from our WM Renewable Energy segment based on net operating revenue generated through the sale of RNG, renewable identification numbers (“RINs”), electricity and capacity, Renewable Energy Credits (“RECs”) and related environmental attributes from the 83 landfill beneficial use renewable energy projects owned by WM Renewable Energy on our active landfills, which is eliminated in consolidation.

Recycling Processing and Sales

Our Recycling Processing and Sales segment includes the processing and sales of materials collected from residential, commercial and industrial customers.

The materials are delivered to and processed at one of our many recycling facilities.

Through our brokerage business, we also manage the marketing of recycling commodities that are processed in our facilities and by third parties by maintaining comprehensive service centers that continuously analyze market prices, logistics, market demands and product quality.

Recycling Processing and Sales revenues generally consist of tipping fees and the sale of recycling commodities to and/or on behalf of third parties.

Our Recycling Processing and Sales segment excludes the collection of recycled materials from our residential, commercial, and industrial customers which is included within our Collection and Disposal businesses.

WM Renewable Energy

Our WM Renewable Energy segment develops, operates and promotes projects for the beneficial use of landfill gas.

Landfill gas is produced naturally as waste decomposes in a landfill.

The methane component of the landfill gas is a readily available, renewable energy source that can be gathered and used beneficially as an alternative to fossil fuel.

WM Renewable Energy converts landfill gas into several sources of renewable energy to be sold which include RNG, electricity and capacity, heat and/or steam.

WM Renewable Energy also generates and sells (i) RINs under the Renewable Fuel Standard (“RFS”) program;

(ii) other credits under a variety of state programs associated with the use of RNG in our compressed natural gas fleet and (iii) RECs associated with the production of electricity.

The RINs, RECs, and other credits are sold to counterparties who are obligated under the regulatory programs and have a responsibility to procure RINs, RECs, and other credits proportionate to their fossil fuel production and imports.

RINs and RECs prices generally fluctuate in response to regulations enacted by the Environmental Protection Agency (“EPA”) or other regulatory bodies, as well as changes in supply and demand.

As of December 31, 2023, we had 92 landfill gas beneficial use projects producing commercial quantities of methane gas at owned or operated landfills.

For 66 of these projects, the processed gas is used to fuel electricity generators.

The electricity is then sold to public utilities, municipal utilities or power cooperatives.

For 20 of these projects, the gas is used at the landfill or delivered by pipeline to industrial customers as a direct substitute for fossil fuels in industrial processes.

For six of these projects, the landfill gas is processed to pipeline quality RNG and then sold to natural gas suppliers.

The revenues from these facilities are primarily generated through the sale of RNG, RINs, electricity and capacity, RECs and related environmental attributes.

WM Renewable Energy is charged a 15% royalty on net operating revenue from these facilities residing on our active and closed landfills from our Collection and Disposal, and Corporate and Other businesses, which is eliminated in consolidation.

Additionally, WM Renewable Energy operates and maintains 12 third-party landfill beneficial gas use projects in return for service revenue.

Our Collection and Disposal and Corporate and Other businesses benefit from these projects as well as 32 additional third-party landfill beneficial gas use projects in the form of royalties.

Corporate and Other

We also provide additional services that are not managed through our operating segments, which are presented in this report as Corporate and Other.

This includes the activities of our corporate office, including costs associated with our long-term incentive program, expanded service offerings and solutions (such as our investments in businesses and technologies that are designed to offer services and solutions ancillary or supplementary to our current operations) as well as our closed sites.

Also included within our Corporate and Other businesses are closed sites that include (i) five third-party power generating facilities converting our landfill gas to fuel electricity generators;

(ii) one third-party project delivering our landfill gas by pipeline to industrial customers as a direct substitute for fossil fuels in industrial processes and (iii) one third-party RNG processing landfill gas to be sold to natural gas suppliers in return for a royalty.

Additionally, Corporate and Other benefits from a 15% royalty from our WM Renewable Energy segment based on net operating revenue generated through the sale of RNG, RINs, electricity and capacity, RECs and related environmental attributes from the nine landfill beneficial use renewable energy projects owned by WM Renewable Energy on our closed sites, which is eliminated in consolidation.

Included in the fees we charge for our services is our energy surcharge and other charges that are intended to pass through costs to customers.

Business Environment

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However, customers increasingly expect more of their waste materials to be recovered and those waste streams are becoming more complex.

In addition, many state and local governments mandate diversion, recycling and waste reduction at the source and prohibit the disposal of certain types of waste at landfills.

In addition, many state and local governments mandate diversion, recycling and waste reduction at the source and prohibit the disposal of certain types

of waste at landfills.

We monitor these developments to adapt our service offerings.

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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 Environmental, Social and Governance (“ESG”) performance and outlining new 2030 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 renewable energy businesses.

Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we have published our 2023 Sustainability Report, providing details on our sustainability-related performance and outlining progress towards our 2030 sustainability goals.

The Sustainability Report conveys the strong linkage between the Company’s sustainability goals and our growth strategy, inclusive of the planned and ongoing expansion of the Company’s Recycling Processing and Sales and WM Renewable Energy segments.

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 Annual Report on Form 10-K.

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General economic factors and the market for consumer goods, in addition to regulatory developments, can also significantly impact commodity prices for the recyclable materials we sell.

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

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

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

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 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 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 market, 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.

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

Advancements made through these initiatives are intended to seamlessly and digitally connect all enterprise functions required to service customers and provide the best experience.

In late 2021, we began to execute this technology enablement strategy to automate and optimize certain elements of our service delivery model.

The key benefits are to reduce 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 implementation of technologies to enhance the safety, reliability and efficiency within 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 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;

however, we began to see moderate improvements during the second half of 2023.

Significant global supply chain disruption has reduced availability of certain assets used in our business, and inflation has increased costs for the goods and services we purchase, particularly for labor, repair and maintenance, and subcontractor costs.

Supply chain constraints have 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.

While demand for recyclables generally continues to trend upwards, during the second half of 2022, we saw significant declines in commodity prices for recycled materials, and we expect continued significant headwinds from commodity prices for recycled material into 2023, resulting from the slowdown in the global economy, which reduced retail demand and the corresponding need for cardboard packaging to ship retail goods.

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

The constrained labor market has resulted in increased costs for wage adjustments, overtime hours and training new hires.

Geopolitical conflict and the resulting international response, including Russia’s invasion of Ukraine, have also exacerbated market disruption, leading to volatility in commodity prices, impacts on the availability and cost of energy, and vendor and supplier disruptions across the global supply chain.

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 has continued into 2023, we are currently experiencing margin pressures from our commodity-driven businesses, specifically within our Recycling Processing and Sales and WM Renewable Energy segments.

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;

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adoption of new or revised regulations;

future resurgence of COVID-19 or other 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.

Acquisition of Advanced Disposal Services, Inc.

(“Advanced Disposal”)

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

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

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

In connection with our acquisition of Advanced Disposal, we and Advanced Disposal entered into an agreement that provided for GFL Environmental to acquire a combination of assets from us and Advanced Disposal

to address divestitures required by the U.S.

Department of Justice.

Immediately following the acquisition, the divestiture transactions were consummated and the Company subsequently received cash proceeds from the sale of $856 million.

For the year ended December 31, 2022 and 2021, we incurred integration related costs of $10 million and $51 million, respectively, and for the year ended December 31, 2020, we incurred acquisition and integration related costs of $156 million, which were primarily classified as “Selling, general and administrative expenses”.

The post-closing operating results of Advanced Disposal have been included in our consolidated financial statements, within our existing reportable segments.

Post-closing through December 31, 2020, Advanced Disposal recognized $205 million, $142 million and $60 million of revenue, operating expenses and selling, general and administrative expenses, respectively, which are included in our Consolidated Statement of Operations.

For more information related to our acquisitions, see Notes 11 and 17 to the Consolidated Financial Statements and the Summary of Cash Flow Activity section below.

COVID-19 Impact

The impacts of COVID-19 on the global economy increased rapidly during the second quarter of 2020, affecting our business in most geographies and across a variety of our customer types.

Over the past two years, our volumes have recovered, largely exceeding volumes from the pre-pandemic levels in 2019.

While we continue to be optimistic about North America’s overall economic recovery from the impacts of the COVID-19 pandemic.

A significant future resurgence in transmission of COVID-19, a significant new virus variant, or other pandemic conditions that result in business closures and social restrictions could adversely impact our volumes and costs in the future.

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 Year Financial Results

During 2022, we continued to advance our strategic priorities—enhancing employee engagement, improving our operations through the use of technology and automation, and investing in growth through our recycling and renewable energy businesses.

This strategic focus, combined with strong operational execution resulted in increased revenue, income from operations and income from operations margin driven primarily by both yield and volume growth in our collection and disposal business.

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 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.

Despite the significant downturn in commodity prices for recyclable materials in the second half of the year, 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 2023, we continued to focus on our priorities to advance our strategy—enhancing employee engagement, permanently reducing our cost to serve through the use of technology and automation, and investing in growth through our Recycling Processing and Sales and WM Renewable Energy segments.

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

We remain diligent in offering a competitive and differentiated 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 paying a competitive market wage, 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.

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● Revenues of $20,426 million for 2023 compared with $19,698 million in 2022, an increase of $728 million, or 3.7%.

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) higher volume in our collection and disposal lines of business;

The increase is primarily attributable to (i) higher yield in our Collection and Disposal businesses;

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

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

● Operating expenses of $12,606 million in 2023, or 61.7% of revenues, compared with $12,294 million, or 62.4% of revenues, in 2022.

The $1,183 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 recycling and (iii) labor cost increases from frontline employee wage adjustments;

The $312 million increase is primarily attributable to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs and (ii) labor cost pressure from wage increases.

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

● Selling, general and administrative expenses of $1,926 million in 2023, or 9.4% of revenues, compared with $1,938 million, or 9.8% of revenues, in 2022.

The $74 million increase is primarily attributable to (i) higher costs associated with our strategic investments in our digital platform and sustainability initiatives;

(ii) increased labor costs primarily from higher annual incentive compensation costs and merit increases;

(iii) increased

business travel and entertainment expense and (iv) an increase in provision for bad debts;

partially offset by (i) lower long-term incentive compensation costs;

(ii) market adjustments for deferred compensation plans related to investment performance and (iii) lower litigation costs;

The $12 million decrease was primarily due to (i) reduced professional fees in connection with investments in our digital platform, as certain digital projects have moved from higher cost development activities to implementation activities and (ii) lower annual incentive compensation costs;

● Income from operations of $3,575 million, or 17.5% of revenues, in 2023 compared with $3,365 million, or 17.1% of revenues, in 2022.

The increase in the current year was primarily driven by revenue growth in our collection and disposal lines of business driven by both yield and volume, partially offset by (i) inflationary cost pressures;

(ii) labor cost increases from frontline employee wage adjustments;

(iii) non-cash asset impairments;

and (iv) reduced profitability in our recycling business;

The increase in the current year earnings was primarily driven by revenue growth within our Collection and Disposal businesses partially offset by (i) impairments within our Recycling Processing and Sales segment as well as certain investments in our Corporate and Other operations;

(ii) lower market values for RINs and (iii) the decline in recycling commodity prices affecting profitability in our Recycling Processing and Sales segment;

● Net income attributable to Waste Management, Inc.

was $2,304 million, or $5.66 per diluted share, compared with $2,238 million, or $5.39 per diluted share, in 2022.

The increase in income from operations, as discussed above, in addition to a net loss on early extinguishment of debt of $220 million in 2021 that did not repeat in 2022, drove an increase in net income;

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

● Net cash provided by operating activities was $4,719 million in 2023, compared with $4,536 million in 2022.

The increase in net cash provided by operating activities was driven by (i) an increase in earnings and (ii) lower interest payments during 2022.

These results were partially offset by higher income tax payments in 2022 primarily as a result of higher pre-tax earnings and a deposit of approximately $103 million that was made to the Internal Revenue Service (“IRS”) related to a disputed tax matter.

The Company expects to seek a refund of the entire amount deposited with the IRS and litigate any denial of the claim for refund.

See Note 8 to the Consolidated Financial Statements for further discussion;

The increase in net cash provided by operating activities was driven by higher earnings attributable to our Collection and Disposal businesses and lower income tax payments.

This increase was partially offset by (i) unfavorable changes in working capital, net of effects of acquisitions and divestitures;

(ii) higher interest payments and (iii) higher incentive compensation payments during 2023;

● Free cash flow was $1,902 million in 2023, compared with $1,976 million in 2022.

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) higher income tax payments in 2022.

This decrease was partially offset by increased earnings in 2022.

The decrease in free cash flow is primarily attributable to the increase in capital spending, primarily driven by our planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments and higher capital asset purchases in the current year to support our Collection and Disposal businesses.

The decrease was partially offset by the increase in net cash provided by operating activities discussed above and higher proceeds from divestitures of businesses and other assets.

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

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Operating Revenues

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 Services (“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 for the year ended December 31 are as follows (in millions):

The mix of operating revenues for the year ended December 31 are as follows (in millions):

Year Ended December 31:

Other collection

Total collection

Intercompany (b)

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 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 Consolidated Financial Statements included within this report.

Total Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

Other collection

Total collection

Total Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

Other collection

Total collection

Total Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

(a) Intercompany operating revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments.

Transactions within and between segments are generally made on a basis intended to reflect the market value of the service.

The following table provides details associated with the period-to-period change in revenues and average yield for the year ended December 31 (dollars in millions):

Collection and disposal

Recycling (c)

Fuel surcharges and other

Total average yield (d)

Recycling Processing and Sales and WM Renewable Energy (c)(d)

Energy surcharge and mandated fees (d)(e)

Total average yield (f)

Internal revenue growth

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

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

(c) Includes combined impact of commodity price variability in both our Recycling Processing and Sales and WM Renewable Energy segments, as well as changes in certain recycling fees charged by our collection and disposal operations.

(d) Beginning in 2023, the results include changes in our revenue attributable to our WM Renewable Energy segment.

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

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

(e) Our energy surcharge was revised in the second quarter of 2023 to incorporate market prices for both diesel and compressed natural gas (“CNG”).

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

(g) Includes activities from our Corporate and Other businesses.

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

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Total Collection and Disposal

Our overall strategic pricing efforts are focused on recovering our higher 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 8.2% in 2022, up from 4.2% in 2021, illustrating our focus on our pricing efforts in this inflationary environment.

We are driving improvements in our residential line of business, aligning the price charged for services we provide to our customers with the costs to provide the services, resulting in increased average yield in 2022 of 6.1%, up from 4.5% in 2021.

We are also continuing to see growth in our disposal business with our municipal solid waste business experiencing average yield of 6.2% in 2022, up from 3.2% in 2021.

Recycling — Recycling revenues attributable to yield increased $19 million and $537 million in 2022 and 2021, respectively, as compared with the prior year periods, primarily from higher market prices for recycling commodities in 2021 and the first half of 2022, before the significant downturn in the second half of 2022.

Demand for recycled materials strengthened through 2021 and into early 2022, primarily driven by the growth in e-commerce, businesses re-opening, and manufacturers committing to use more recycled content in their packaging.

In 2022, we experienced all-time high recycling commodity pricing in the first half of the year to be followed by historically low pricing through the second half of the year, resulting from the slowdown in the global economy, which reduced retail demand and the corresponding need for cardboard packaging to ship retail goods.

We expect significant commodity price headwinds to continue into 2023.

Average market prices for recycling commodities at the Company’s facilities were approximately 10% lower and 115% higher in 2022 and 2021, respectively, when compared with the prior year periods.

Revenue decline from lower commodity pricing was offset by higher pricing in our recycling brokerage business as well as our continued focus on a fee-based pricing model that ensures fees paid by customers cover the cost of processing materials and the impact on our cost structure of managing contamination in the recycling stream.

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 $474 million and $240 million in 2022 and 2021, respectively, as compared to the prior year periods.

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

Market prices for diesel fuel were over 50% and 30% higher in 2022 and 2021, as compared to the prior year periods.

Revenue from yield growth in our WM Renewable Energy business increased $48 million and $85 million in 2022 and 2021, respectively, as compared to the prior year period, primarily driven by increases in the value for electricity and

renewable natural gas credits.

Our overall pricing efforts are focused on keeping pace with the increasing costs and capital intensity of our business.

We are continuing to see growth in our landfill business with our municipal solid waste experiencing average yield of 4.9% in 2023.

Recycling Processing and Sales and WM Renewable Energy — Recycling Processing and Sales revenues attributable to yield decreased $308 million in 2023 and increased $19 million in 2022, respectively, as compared with the prior year periods.

While still below prices seen at the beginning of 2022, recycling commodity prices began to improve in the fourth quarter of 2023 and 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.

Average market prices for single-stream recycled commodities were down 40% and 10% in 2023 and 2022, respectively, as compared with the prior year periods.

During 2023, the revenue decline from lower commodity pricing that started in 2022 was partially offset by higher pricing in our recycling brokerage business as well as our continued focus on a fee-based pricing model.

Additionally, revenue in our WM Renewable Energy segment decreased $73 million and increased $48 million in 2023 and 2022, respectively, as compared with the prior year periods, primarily driven by the fluctuations in energy prices and the value of RINs.

Energy Surcharge and Mandated Fees — These fees decreased $104 million in 2023 and increased $426 million in 2022, 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 in 2023 is primarily due to a decline of approximately 15% in market prices for diesel fuel as compared to the prior year period.

The increase in energy surcharge revenues in 2022 was driven by a 50% increase in diesel fuel in 2022, as compared with the prior year period.

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.

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Our revenues from volume (excluding volumes from acquisitions and divestitures) increased $150 million, or 0.8%, and $233 million, or 1.3%, in 2023 and 2022, respectively, as compared with the prior year periods.

Our collection and disposal business volumes grew 1.8% and 3.0% in 2022 and 2021, respectively.

Our 2022 volume growth has moderated when compared to the accelerated volume recovery from COVID-related impacts experienced in 2021.

Special waste volumes at our landfills have been the most significant driver of volume growth, primarily due to an increase in event-driven projects.

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

Our volumes have been impacted by our intentional efforts to reduce unprofitable residential and industrial collection volumes.

We experienced higher volume growth in 2021 relative to the sharp decline experienced in April 2020 as a result of COVID-related impacts.

The pace of recovery in our volumes accelerated in the second quarter of 2021 and continued in the second half of 2021 with minimal impact from periodic resurgences in transmission of COVID-19 virus variants as communities and businesses have remained open.

The portions of our business that had the most pronounced decreases in volume due to the pandemic were our industrial and commercial collection businesses and our landfill volumes.

Our Collection and Disposal businesses volume grew 0.7% and 1.8% in 2023 and 2022, respectively.

Our 2023 volume growth has moderated when compared to 2022.

Special waste volumes at our landfills continue to be a significant driver, primarily due to an increase in event-driven projects.

In addition, we saw an increase in our WMSBS volumes.

These increases were partially offset by a decrease in temporary industrial collection volumes and the intentional shedding of low-margin residential collection business.

Acquisitions and Divestitures

Acquisitions and divestitures resulted in a net increase in revenues of $47 million, or 0.3%, and $983 million, or 6.5%, in 2022 and 2021, respectively, as compared with the prior year periods, with the increase in 2021 primarily due to our acquisition of Advanced Disposal.

Acquisitions and divestitures, primarily in our Collection and Disposal businesses, resulted in a net increase in revenues of $181 million, or 0.9%, and $47 million, or 0.3%, in 2023 and 2022, respectively, as compared with the prior year periods.

Operating Expenses

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(iv) subcontractor costs, which include the costs of independent haulers who transport waste collected by us to disposal facilities and are affected by variables such as volumes, distance and fuel prices;

(v) costs of goods sold, which includes the cost to purchase recycling materials for our recycling line of business, including certain rebates paid to suppliers;

(v) costs of goods sold, which includes the cost to purchase recycling materials for our Recycling Processing and Sales segment, including certain rebates paid to suppliers;

(vi) fuel costs, net of tax credits for alternative fuel, which represent the costs of fuel to operate our truck fleet and landfill operating equipment;

(vii) disposal and franchise fees and taxes, which include landfill taxes, municipal franchise fees, host community fees, contingent landfill lease payments and royalties;

(viii) landfill operating costs, which include interest accretion on landfill liabilities, interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets, leachate and methane collection and treatment, landfill remediation costs and other landfill site costs;

(viii) landfill operating costs, which include interest accretion on landfill liabilities, interest accretion on and discount rate adjustments to environmental remediation liabilities, leachate and methane collection and treatment, landfill remediation costs and other landfill site costs;

(ix) risk management costs, which include general liability, automobile liability and workers’ compensation claims programs costs and (x) other operating costs, which include gains and losses on sale of assets, telecommunications, equipment and facility lease expenses, property taxes, utilities and supplies.

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Risk management

Our operating expenses in 2022 increased, as compared with 2021, 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 recycling and (iii) labor cost pressure from frontline employee wage adjustments.

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

Our operating expenses in 2021 increased, as compared with 2020, primarily due to (i) increased volumes from the acquisition of Advanced Disposal;

(ii) commodity-driven business impacts, particularly from recycling brokerage rebates and higher fuel prices;

(iii) volume recovery from earlier pandemic-driven lows;

(iv) labor cost pressure from frontline employee wage adjustments, increased turnover driving up training costs and higher overtime due to driver shortages and volume growth and (v) inflationary cost pressures, primarily in the second half of 2021.

Our operating expenses increased in 2023, as compared with 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.

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 continue to focus on operating efficiency and efforts to control our costs, which along with revenue growth, enabled us to improve operating costs as a percent of revenues in 2023 as compared with 2022.

Our operating expenses increased in 2022, as compared with 2021, primarily due to (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs;

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

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

Significant items affecting the comparison of operating expenses between reported periods include:

Labor and Related Benefits — The increase in labor and related benefits costs in 2022, as compared with 2021,was largely driven by (i) proactive market wage adjustments to hire and retain talent;

(ii) annual merit and annual incentive compensation cost increases 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.

The increase in labor and related benefits costs in 2021, as compared with 2020, was largely driven by (i) increased labor and related benefits costs related to our acquisition of Advanced Disposal;

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

(iii) volume increases, particularly in our commercial and industrial collection businesses, which when combined with driver shortages and turnover in certain markets, increased overtime and training hours;

(iv) higher annual incentive compensation and (v) increases in health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels.

Transfer and Disposal Costs — The increase in transfer and disposal costs in 2022, as compared with 2021, was largely driven by inflationary cost increases, which includes increased disposal fees at third-party sites and higher fuel from our third-party haulers offset, in part, by decreases in residential collection and transfer volume.

The increase in transfer and disposal costs in 2021, as compared with 2020, was largely driven by increased volume, which includes the volumes from our acquisition of Advanced Disposal and inflationary cost increases from our third-party haulers.

Maintenance and Repairs — The increase in maintenance and repairs costs in 2022, as compared with 2021,was largely driven by (i) inflationary cost increases for parts, supplies and third-party services;

Labor and Related Benefits — The increase in labor and related benefits costs in 2023, as compared with 2022, was primarily driven by (i) employee market wage adjustments;

(ii) increased headcount primarily from acquisitions and (iii) increases in health and welfare costs and in medical care activity.

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

The increase in labor and related benefits costs in 2022, as compared with 2021, was largely driven by (i) proactive market wage adjustments to hire and retain talent;

(ii) annual merit and annual incentive compensation cost increases and (iii) increases in health and welfare costs attributable to our 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 in 2023, as compared with 2022, 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 a decrease in collection volumes.

The increase in transfer and disposal costs in 2022, as compared with 2021, was largely driven by inflationary cost increases, which includes increased disposal fees at third-party sites and higher fuel from our third-party haulers, offset, in part, by decreases in residential collection and transfer volume.

Maintenance and Repairs — The increase in maintenance and repairs costs in 2023, as compared with 2022, was primarily driven by (i) continued inflationary cost increases for parts, supplies and third-party services, although the impact of such inflationary cost increases moderated throughout the year and (ii) labor cost increases for our technicians, including additional headcount.

The increase in maintenance and repairs costs in 2022, as compared with 2021, 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;

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(iv) increased building maintenance costs including improvements to facilities and (v) an increase in container repairs driven by delays in delivery of steel containers due to supply chain constraints.

The increase in maintenance and repairs costs in 2021, as compared with 2020, was largely driven by (i) our acquisition of Advanced Disposal, including intentional investments to bring the acquired fleet to our standards;

(ii) inflationary cost

increases for parts, supplies and third-party services;

(iii) additional fleet maintenance driven by commercial and industrial collection volume increases;

(iv) labor cost increases for our technicians, including higher overtime from labor shortages;

(v) an increase in container repairs driven by volume increases and delays in normal course capital expenditures for steel containers due to both steel costs and supply chain constraints and (vi) increased building maintenance costs including improvements to facilities.

Subcontractor Costs — The increase in subcontractor costs in 2022, as compared with 2021,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.

The increase in subcontractor costs in 2021, as compared with 2020, was largely driven by (i) inflationary cost increases from third-party haulers and higher volumes;

(ii) an increase in volumes in our WMSBS business and (iii) the acquisition of Advanced Disposal.

Cost of Goods Sold — The increase in cost of goods sold in 2022, as compared with 2021, was primarily driven by all-time high recycling commodity pricing in the first half of the year offset, in part, by the historically low pricing through the second half of the year.

The increase in cost of goods sold in 2021, as compared with 2020, was primarily driven by increases in market prices for recycling commodities of approximately 115% and to a lesser extent, higher recycling volumes.

Fuel — The increase in fuel costs in 2022, as compared with 2021, was primarily due to increases in market diesel and natural gas fuel prices as compared to the prior year.

The increase in fuel costs in 2021, as compared with 2020, was primarily due to (i) increases in market diesel and natural gas fuel prices;

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

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes in 2022, as compared with 2021, was primarily driven by higher franchise fees, driven by 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.

The increase in disposal and franchise fees and taxes in 2021, as compared with 2020, was primarily driven by (i) landfill volume increases;

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

Landfill Operating Costs — Our landfill operating costs increased in 2022, as compared with 2021, primarily due to increases in methane and leachate management costs and other site maintenance costs, in part due to inflation.

The increase in landfill operating costs in 2021, as compared with 2020, was primarily due to volume increases, including from our acquisition of Advanced Disposal and increased testing and monitoring costs.

These increases were partially offset by (i) lower leachate management costs, primarily due to the cessation of certain transportation costs in our East Tier segment and (ii) changes in the measurement of our environmental remediation obligations and recovery assets.

The increases in both 2022 and 2021 were offset, in part, by changes in the measurement of our environmental remediation obligations and recovery assets in each year.

Subcontractor Costs — The increase in subcontractor costs in 2023, as compared with 2022, was primarily due to (i) an increase in volumes in our WMSBS and SES businesses, which rely more extensively on subcontracted hauling and services than other parts of our Collection and Disposal businesses and (ii) continued inflationary cost increases, particularly labor and other costs from third-party haulers.

The increase in subcontractor costs in 2022, as compared with 2021, 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 other parts of our Collection and Disposal businesses.

Cost of Goods Sold — The decrease in cost of goods sold in 2023, as compared with 2022, was primarily driven by a 40% decrease in average single-stream recycling commodity prices.

The increase in cost of goods sold in 2022, as compared with 2021, was primarily driven by all-time high recycling commodity pricing in the first half of the year offset, in part, by the historically low pricing through the second half of the year that persisted into 2023.

Fuel — The decrease in fuel costs in 2023, as compared with 2022, was primarily due to a decrease of approximately 15% in average market prices for diesel fuel.

The approximate 50% increase in fuel costs in 2022, as compared with 2021, was primarily due to increases in market diesel and natural gas fuel prices as compared to the prior year.

Disposal and Franchise Fees and Taxes — The increase in disposal and franchise fees and taxes in 2023, as compared with 2022, was primarily driven by an overall rate increase in fees and taxes paid to municipalities on our disposal volumes.

The increase in disposal and franchise fees and taxes in 2022, as compared with 2021, was primarily driven by higher franchise fees, driven by 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 in 2023, as compared with 2022, was primarily due to (i) higher expenses for interest accretion on landfill and environmental remediation liabilities and (ii) an increase in remediation expense due to changes in measurement of certain environmental remediation obligations.

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

Treasury bonds.

The discount rate increased, which resulted in a reduction in the net liability balance and a credit to expense, in both 2021 and 2022 with more significant impact in 2022.

Conversely, in 2020, there was a decrease in the discount rate, which resulted in an increase in the net liability balance and a charge to expense.

Risk Management — Risk management costs increased slightly in 2022, as compared with 2021, primarily due to inflation in premiums.

The increase in risk management costs in 2021, as compared with 2020, was primarily due to our acquisition of Advanced Disposal and overall economic recovery from COVID-driven impacts, increasing business activity and claim volumes and related costs.

Other — Other operating cost increases in 2022, as compared with 2021, were primarily due to (i) inflationary cost pressures;

In 2023, the U.S Treasury bond rate remained flat versus a significant increase in 2022, which decreased our remediation

expense in 2022.

Our landfill operating costs increased in 2022, as compared with 2021, primarily due to increases in methane and leachate management costs.

Risk Management — The decrease in risk management in 2023, as compared with 2022, was primarily due to lower levels of large loss claims.

Risk management costs increased slightly in 2022, as compared with 2021, primarily due to inflation in premiums and a stable level of large loss claims.

Other — Other operating costs decreased in 2023, as compared with 2022, primarily due to (i) supply chain rebates in 2023 and (ii) a favorable litigation settlement, which were offset, in part, by (i) inflationary cost pressures, although the impact of such continued inflationary cost increases moderated throughout the year;

(ii) higher utility costs at our facilities;

(iii) an increase in business travel and (iv) higher equipment rental costs.

Other operating cost increases in 2022, as compared with 2021, were primarily due to (i) inflationary cost pressures;

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

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Additionally, a favorable litigation settlement in 2021 impacted the comparison.

Other operating cost increases in 2021, as compared with 2020, were due to our acquisition of Advanced Disposal and increased equipment rental costs attributable, in part, to increased volumes and supply chain constraints slowing normal course fleet and equipment orders.

Additionally, during the second half of 2021, additional volumes and inflationary cost pressures drove an increase in various costs.

offsetting these was a favorable litigation settlement in 2021.

Additionally, net gains on sales of certain assets during each year impacted the comparability of the reported periods

Net gains on sales of certain assets during each year also impacted the comparability of the reported periods.

Selling, General and Administrative Expenses

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Provision for bad debts

Selling, general and administrative expenses in 2023, as compared with 2022, decreased primarily due to (i) reduced professional fees in connection with investments in our digital platform, as certain digital projects have moved from higher cost development activities to implementation activities, and (ii) lower annual incentive compensation costs.

These decreases were partially offset by annual wage increases and increased litigation costs.

Selling, general and administrative expenses in 2022, as compared with 2021, increased primarily due to (i) strategic investments in our digital platform, including those that support our ongoing sustainability initiatives;

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(ii) market adjustments for deferred compensation plans related to investment performance and (iii) lower litigation costs.

Selling, general and administrative expenses in 2021, as compared with 2020, increased primarily due to (i) higher incentive compensation costs;

(ii) strategic investments in our digital platform and (iii) increased labor, support and integration costs following our acquisition of Advanced Disposal.

Partially offsetting these increases are lower consulting, advisory and legal fees following the completion of our acquisition of Advanced Disposal in 2020 and improvements in our provision for bad debts as collections returned to pre-pandemic levels.

Although our costs increased in 2022 and 2021, the significant revenue increases positioned us to reduce our overall selling, general and administrative expenses as a percentage of revenues when compared with each of the prior year periods.

The effective management of our costs resulted in a significant reduction in our selling, general and administrative expenses as a percentage of revenues when compared with each of the prior year periods.

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

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

Labor and Related Benefits — The decrease in labor and related benefits costs in 2022, as compared with 2021, was primarily due to (i) lower long-term incentive compensation costs;

Labor and Related Benefits — The increase in labor and related benefits costs in 2023, as compared with 2022, was primarily related to (i) annual wage increases for our employees;

(ii) market adjustments for deferred compensation plans related to investment performance and (iii) higher long-term incentive compensation costs, partially offset by lower annual incentive compensation costs and lower contract labor expenses.

The decrease in labor and related benefits costs in 2022, as compared with 2021, was primarily due to (i) lower long-term incentive compensation costs;

(ii) reductions in contract labor and (iii) market adjustments for deferred compensation plans related to investment performance, partially offset by higher annual incentive compensation and annual merit increases for our employees.

The increase in labor and related benefits costs in 2021, as compared with 2020, was primarily due to (i) higher incentive compensation costs;

(ii) additional headcount, including from our acquisition of Advanced Disposal;

(iii) annual merit increases for our employees;

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

Professional Fees — The increase in professional fees in 2022, as compared with 2021, was primarily driven by strategic investments in our digital platform, including those that support our ongoing sustainability initiatives, partially

offset by lower acquisition and integration costs.

Professional fees decreased in 2021, as compared with 2020, primarily due to lower consulting, advisory and legal fees following the completion of our acquisition of Advanced Disposal in 2020, partially offset by increased strategic investments in our digital platform and integration costs related to our acquisition of Advanced Disposal.

Provision for Bad Debts — The increase in provision for bad debts in 2022, as compared with 2021, is primarily related to (i) increased revenue;

Professional Fees — The decrease in professional fees in 2023, as compared with 2022, was primarily attributable to reduced expenses in connection with investments in our digital platform, as certain digital projects have moved from higher cost development activities to implementation activities.

The increase in professional fees in 2022, as compared with 2021, was primarily driven by strategic investments in our digital platform, including those that support our ongoing sustainability initiatives, partially offset by lower acquisition and integration costs.

Provision for Bad Debts — The increase in provision for bad debts in 2023, as compared with 2022, was primarily related to an increase in revenue and customer-specific provisions required for bankruptcies of two of our WMSBS customers.

The increase in provision for bad debts in 2022, as compared with 2021, was primarily related to (i) increased revenue;

(ii) increased collection risk with certain customers and (iii) favorable adjustments to our reserves taken in 2021 as a result of improvement in customer account collections.

The decrease in provision for bad debts in 2021, as compared with 2020, was primarily due to an overall improvement in customer account collections and decreased collection risk with certain customers.

Other — The increase in other expenses in 2022, as compared with 2021, was primarily driven by costs associated with technology infrastructure to support our strategic investments in our digital platform and an increase in business travel and entertainment expense, partially offset by lower litigation costs.

The increase in other expenses in 2021, as compared with 2020, was primarily driven by costs associated with our acquisition of Advanced Disposal and increased technology infrastructure costs to support our strategic investments in our digital platform.

Other — The increase in other expenses in 2023, as compared with 2022, was primarily related to (i) increased litigation costs;

(ii) increased bank charges and (iii) higher advertising spend, which were partially offset by lower travel expenses and lower telecommunication costs.

The increase in other expenses in 2022, as compared with 2021, was primarily driven by costs associated with technology infrastructure to support our strategic investments in our digital platform and an increase in business travel and entertainment expense, partially offset by lower litigation costs.

Depreciation, Depletion and Amortization Expenses

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Amortization of intangible assets

The increase in depreciation of tangible property and equipment in 2023, as compared with 2022, was mainly influenced by strategic investments in our digital platform and investments in capital assets to service our customers, such as machinery and containers.

The decrease in depletion of landfill airspace in 2023, as compared with 2022, was primarily driven by reductions in volume partially offset by the reopening of a previously closed site in our East Tier.

The increase in depreciation of tangible property and equipment in 2022, as compared with 2021, was primarily driven by investments in capital assets, including containers to service our customers and strategic investments in our digital platform.

The increase in depletion of landfill airspace in 2022, as compared with 2021, was primarily driven by changes in depletion rates from revisions in landfill cost estimates and increased volumes at our landfills, partially offset by a prior year charge due to management’s decision to close a landfill in our West Tier segment earlier than expected, resulting in the acceleration of the timing of capping, closure, and post-closure activities.

The decrease in amortization of intangible assets in 2022, as compared with 2021, was primarily driven by the amortization of acquired intangible assets from the acquisition of Advanced Disposal.

The increase in depreciation of tangible property and equipment in 2021, as compared with 2020, was related to our acquisition of Advanced Disposal and investments in capital assets, including our fleet, heavy equipment at our landfills and containers to service our customers.

The increase in depletion of landfill airspace in 2021, as compared with 2020, was driven by (i) changes in depletion rates driven by revisions in landfill estimates, including a $15 million charge due to management’s decision to close a landfill in our West Tier segment earlier than expected;

(ii) our acquisition of Advanced Disposal and (iii) landfill volume increases associated with the economic recovery from COVID-driven impacts.

Additionally, 2020 benefited from a decrease in the inflation rate used to estimate capping, closure, and post-closure asset retirement obligations.

The increase in amortization of intangible assets in 2021, as compared with 2020, was primarily driven by the amortization of acquired intangible assets related to the acquisition of Advanced Disposal.

Restructuring

During the year ended December 31, 2021, we recognized $8 million of restructuring charges primarily related to our acquisition of Advanced Disposal.

During the year ended December 31, 2020, we recognized $9 million of restructuring

charges primarily related to modifying our field sales and customer services structures to better support our strategic investments in our digital platform.

The increase in depletion of landfill airspace in 2022, as compared with 2021, was primarily driven by changes in depletion rates from revisions in landfill cost estimates and increased volumes at our landfills, partially offset by a prior year charge due to management’s decision to close a landfill in our West Tier earlier than expected, resulting in the acceleration of the timing of capping, closure, and post-closure activities.

The decrease in amortization of intangible assets in 2022, as compared with 2021, was primarily driven by the amortization of acquired intangible assets from the acquisition of Advanced Disposal Services, Inc.

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

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Asset impairments

For the year ended December 31, 2022, we recognized $62 million of net charges consisting of (i) $50 million of asset impairment charges primarily related to management’s decision to close two landfills within our East Tier segment and (ii) 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 10 to the Consolidated Financial Statements.

These losses were partially offset by a $5 million gain from the divestiture of a solid waste business in our West Tier segment.

For the year ended December 31, 2021, we recognized net gains of $16 million primarily consisting of (i) a $35 million pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in our East Tier segment and (ii) an $8 million gain from divestitures of certain ancillary operations in our Other segment.

These gains were partially offset by (i) a $20 million charge pertaining to reserves for loss contingencies in our Corporate and Other segment and (ii) $8 million of asset impairment charges primarily related to our WM Renewable Energy business within our Other segment.

For the year ended December 31, 2020, we recognized $35 million of net charges primarily related to (i) a $33 million net gain associated with net asset divestitures executed to address requirements of the U.S.

Department of Justice in connection with our acquisition of Advanced Disposal, primarily within our West Tier segment;

(ii) $41 million of non-cash impairment charges primarily related to two landfills and an oil field waste injection facility in our West Tier segment;

(iii) a $20 million non-cash impairment charge in our East Tier segment due to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace and (iv) $7 million of net charges primarily related to non-cash impairments of certain assets within our WM Renewable Energy business in our Other segment.

During the year ended December 31, 2023, we recognized $243 million of net charges primarily consisting of (i) a $168 million goodwill impairment charge within our Recycling Processing and Sales segment related to a business engaged in accelerating film and plastic wrap recycling capabilities, with $22 million attributable to noncontrolling interests.

This charge was partially offset by the recognition of $46 million of income related to the reversal of a liability for contingent consideration associated with our investment in such business;

(ii) $107 million of impairment charges within Corporate and Other for certain investments in waste diversion technology businesses and (iii) a $17 million charge within Corporate and Other to adjust an indirect wholly-owned subsidiary’s estimated potential share of the liability for a proposed environmental remediation plan at a closed site.

Refer to Notes 5 and 10 to the Consolidated Financial Statements for further information.

During the year ended December 31, 2022, we recognized $62 million of net charges consisting of (i) $50 million of asset impairment charges primarily related to management’s decision to close two landfills within our East Tier and (ii) a $17 million charge pertaining to reserves for loss contingencies within Corporate and Other 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 10 to the Consolidated Financial Statements.

These losses were partially offset by a $5 million gain from the divestiture of a collection and disposal operation in our West Tier.

During the year ended December 31, 2021, we recognized net gains of $16 million primarily consisting of (i) a $35 million pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations in our East Tier and (ii) an $8 million gain from divestitures of certain ancillary operations within our Collection and Disposal businesses.

These gains were partially offset by (i) a $20 million charge pertaining to reserves for loss contingencies within Corporate and Other and (ii) $8 million of asset impairment charges primarily related to our WM Renewable Energy segment.

See Note 2 to the Consolidated Financial Statements for additional information related to the accounting policy and analysis involved in identifying and calculating impairments.

See Note 19 to the Consolidated Financial Statements for additional information related to the impact of impairments on the results of operations of our reportable segments.

Income from Operations

The following table summarizes income from operations for the year ended December 31 (dollars in millions):

Corporate and Other (b)

Collection and Disposal:

Other Ancillary

Collection and Disposal

Recycling Processing and Sales

WM Renewable Energy

Corporate and Other

Percentage of revenues

* Percentage change does not provide a meaningful comparison.

(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.

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

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

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

Solid Waste — The most significant items affecting the results of operations of our Solid Waste business during the three years ended December 31, 2022 are summarized below:

● Income from operations in our Solid Waste business increased in 2022, as compared with 2021, primarily due to revenue growth in our collection and disposal businesses driven by both yield and volume.

(a) From time to time, the operating results of our reportable segments are significantly affected by certain transactions or events that management believes are not indicative or representative of our results.

Collection and Disposal — The most significant items affecting the results of operations of our Collection and Disposal businesses during the three years ended December 31, 2023 are summarized below:

● Income from operations in our Collection and Disposal businesses increased in 2023, as compared with 2022, primarily due to revenue growth in our collection and disposal operations driven by both yield and volume.

This increase was partially offset by (i) inflationary cost pressures, particularly for maintenance and repairs and subcontractor costs and (ii) labor cost pressure from frontline employee market wage adjustments.

● Income from operations in our Collection and Disposal businesses increased in 2022, as compared with 2021, primarily due to revenue growth in our collection and disposal operations driven by both yield and volume.

This increase was partially offset by (i) inflationary cost pressures;

(ii) labor cost increases from frontline employee wage adjustments;

(iii) divestitures, asset impairments and unusual items discussed above in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net ;

that impacted our East Tier results and (iv) reduced profitability in our recycling business from the decline in recycling commodity prices and lower volumes.

● Income from operations in our Solid Waste business increased in 2021, as compared with 2020, primarily due to (i) revenue growth in our collection and disposal businesses driven by both yield and volume, as well as the acquisition of Advanced Disposal;

(ii) improved profitability in our recycling business from higher market prices for recycling commodities and improved costs at facilities where we have made investments in enhanced technology and equipment and (iii) changes from divestitures, asset impairments and unusual items discussed above in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net that impacted both Tiers’ results.

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

(ii) increased landfill depletion from higher volumes and revisions in landfill estimates, including the anticipated timing of capping, closure and post-closure activities at certain landfills and adjustments in 2020 to the inflation rate used to estimate capping, closure, and post-closure asset retirement obligations that benefitted costs in 2020 and (iii) inflationary cost pressures.

During 2021, the positive earnings contributions from Advanced Disposal were offset by elevated depreciation, depletion and amortization of acquired assets.

Other — The decrease in income from operations in 2022, as compared with 2021, was due to the recognition of acquisition and integration-related costs, as well as, a prior year gain from divestitures of certain ancillary operations in our Other segment, discussed above in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net , partially offset by improved profitability in our SES and WMSBS businesses.

The increase in income from operations for 2021, as compared to 2020, was primarily driven by increased market values for renewable energy credits generated by our WM Renewable Energy business.

Corporate and Other — The most significant items affecting the results of operations for Corporate and Other during the three years ended December 31, 2022 are summarized below:

● These costs increased in 2022, as compared with 2021, primarily due to strategic investments in our digital platform and sustainability initiatives, partially offset by lower acquisition and integration related costs.

● These costs increased in 2021, as compared with 2020, due to (i) higher incentive compensation costs;

(ii) increased labor, support and integration costs following our acquisition of Advanced Disposal;

(iii) strategic investments in our digital platform;

(iv) increased health and welfare costs attributable to medical care activity generally returning to pre-pandemic levels from the lower levels experienced during 2020 and (v) charges pertaining to reserves for certain loss contingencies during 2021.

These increases were partially offset by lower consulting, advisory and legal fees following the completion of our acquisition of Advanced Disposal in the fourth quarter of 2020 and changes in the measurement of our environmental remediation obligations and recovery assets in both 2020 and 2021.

(ii) labor cost increases from frontline employee wage adjustments and (iii) divestitures, asset impairments and unusual items discussed below in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net , that impacted our East Tier results.

Recycling Processing and Sales — Income from operations in our Recycling Processing and Sales segment decreased in 2023, as compared with 2022, primarily due to (i) a $168 million goodwill impairment charge, with $22 million attributable to noncontrolling interests, which was partially offset by the recognition of $46 million of income related to the reversal of contingent consideration, as discussed above in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net ;

(ii) a decline in recycling commodity prices;

(iii) lower revenue resulting from the temporary shutdown of facilities for technology upgrades combined with increased costs associated with the transportation and third-party tip fees for processing recyclables and (iv) startup costs linked to the establishment of a new processing facility.

Income from operations in our Recycling Processing and Sales segment decreased in 2022, as compared with 2021, primarily due to the decline in recycling commodity prices.

WM Renewable Energy — Income from operations in our WM Renewable Energy segment decreased in 2023, as compared with 2022, primarily due to (i) lower energy prices and the value of RINs and (ii) increased operating and selling, general and administrative costs associated with the construction of new projects to increase the beneficial use of landfill gas.

These decreases were partially offset by an increase in volume of RFS credits, electricity and natural gas.

Income from operations in our WM Renewable Energy segment increased in 2022, as compared with 2021, primarily due to higher market values for RINs credits.

Corporate and Other — Income from operations in Corporate and Other decreased in 2023, as compared with 2022, primarily due to non-cash impairment charges for certain investments as discussed above in (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net .

Income from operations in Corporate and Other decreased in 2022, as

compared with 2021, primarily due to strategic investments in our digital platform and sustainability initiatives, partially offset by lower acquisition and integration related costs.

Interest Expense, Net

Our interest expense, net was $500 million, $378 million and $365 million in 2023, 2022 and 2021, respectively.

The increase in interest expense, net for 2022 was primarily related to borrowings incurred under our $1.0 billion two-year, U.S.

term credit agreement (“Term Loan”) and increases in interest rates on our floating-rate debt, including commercial paper and variable-rate tax-exempt bonds.

Partially offsetting these increases were benefits from higher capitalized interest and increases in interest income as a result of higher cash and cash equivalent balances.

The decrease in interest expense, net for 2021 was primarily due to certain refinancing activities, as discussed further below, including (i) the redemption of $3.0 billion of senior notes in July 2020 and the issuance of $2.5 billion of senior notes in November 2020 at lower rates and (ii) the retirement of $1.3 billion of certain high-coupon senior notes and concurrent issuance of $950 million of lower coupon senior notes in May 2021.

The decreases were partially offset by decreases in interest income as a result of lower cash and cash equivalents balances in 2021.

The increase in interest expense, net for 2023 is primarily related to an increase in our weighted average borrowing rate of approximately 80 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 $1.0 billion two-year, U.S.

term credit agreement (“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.

The increase in interest expense, net for 2022 was primarily related to borrowings incurred under our Term Loan and increases in interest rates on our floating-rate debt, including commercial paper and variable-rate tax-exempt bonds.

Partially offsetting these increases in 2023 and 2022 were benefits from higher capitalized interest and increases in interest income as a result of higher cash and cash equivalent balances as well as higher investment rates.

See Note 6 to the Consolidated Financial Statements for more information related to our debt balances.

Loss on Early Extinguishment of Debt, Net

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

Concurrently, we used the net proceeds from the newly issued senior notes of $942 million and available cash on hand to retire $1.3 billion of certain high-coupon senior notes.

In May 2021, WMI issued $950 million of senior notes and used the net proceeds of $942 million as well as available cash on hand to retire $1.3 billion of certain high-coupon senior notes.

The loss on early extinguishment of debt for 2021 includes $220 million of charges related to this tender offer, including cash paid of $211 million related to premiums and other third-party costs, and $9 million primarily related to unamortized discounts and debt issuance costs.

See Note 6 to the Consolidated Financial Statements for more information related to these transactions.

In July 2020, we recognized a $52 million loss on early extinguishment of debt in our Consolidated Statement of Operations related to the mandatory redemption of $3.0 billion of senior notes with a special mandatory redemption feature (the “SMR Notes”).

The loss includes $30 million of premiums paid and $22 million of unamortized discounts and debt issuance costs.

Pursuant to the terms of the SMR Notes, we were required to redeem all of such outstanding notes paying debt holders 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest, as a result of the Advanced Disposal acquisition not being completed by July 14, 2020.

Accordingly, the redemption was completed on

July 20, 2020 using available cash on hand and, to a lesser extent, commercial paper borrowings.

The cash paid included the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest.

During the fourth quarter of 2020, we repaid the outstanding borrowings under a 364-day revolving credit facility and contemporaneously terminated the facility, at which time we recognized a $2 million loss on early extinguishment of debt in our Consolidated Statement of Operations related to unamortized debt issuance costs.

Additionally, at the time of acquisition, Advanced Disposal had outstanding $425 million of 5.625% senior notes due November 2024.

In November 2020, we redeemed the notes pursuant to an optional redemption feature upon which we recognized a $1 million gain on early extinguishment of debt in our Consolidated Statement of Operations due to the difference in carrying value and redemption price.

Equity in Net Losses of Unconsolidated Entities

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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 Notes 8 and 18 to the Consolidated Financial Statements.

We also held a residual financial interest in an entity that owned a refined coal facility that qualified for federal tax credits.

In 2020, the entity sold the majority of its assets resulting in a $7 million non-cash impairment charge at that time.

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 Notes 8 and 18 to the Consolidated Financial Statements.

Income Tax Expense

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The comparability of our income tax expense for the reported periods has been primarily affected by the following:

● Investments Qualifying for Federal Tax Credits — Our low-income housing properties investments reduced our income tax expense by $99 million, $74 million and $87 million, primarily due to tax credits realized from these investments for the years ended December 31, 2022, 2021 and 2020, respectively.

● Investments Qualifying for Federal Tax Credits — Our low-income housing properties investments reduced our income tax expense by $108 million, $99 million and $74 million, primarily due to tax credits realized from these investments as well as the tax benefits from pre-tax losses for the years ended December 31, 2023, 2022 and 2021, respectively.

See Note 18 to the Consolidated Financial Statements for additional information related to these unconsolidated variable interest entities;

● Equity-Based Compensation — During 2022, 2021 and 2020, we recognized a reduction in our income tax expense of $17 million, $18 million and $27 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards;

● Tax Implications of Impairments — The non-cash impairment charges recognized during 2023 are not expected to be deductible for tax purposes.

The impact of these non-deductible charges would have resulted in a decrease to income tax expense of $50 million.

The non-cash impairment charges recognized during 2022 and 2021 were deductible for tax purposes.

See Note 11 to the Consolidated Financial Statements for more information related to our impairment charges;

● Permanent Differences — During 2023, 2022 and 2021 we recognized additional income tax expense of $34 million, $14 million and $2 million, respectively, related to permanent differences between taxable income and accounting income.

This increase is largely due to an increase in taxable interest income associated with the

Company’s election to deduct landfill closure and post-closure costs for income tax purposes when incurred and accrued.

The increase in taxable interest income is due to the increase in the applicable federal rate published by the IRS;

● State Net Operating Losses and Credits — During 2023, 2022 and 2021, we recognized state net operating losses and credits resulting in a reduction in our income tax expense of $20 million, $8 million and $15 million, respectively;

● Equity-Based Compensation — During 2023, 2022 and 2021, we recognized a reduction in our income tax expense of $14 million, $17 million and $18 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards;

● Tax Audit Settlements — We file income tax returns in the U.S.

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During the reported periods, we settled various tax audits which resulted in a reduction in our income tax expense of $5 million, $6 million and $13 million for the years ended December 31, 2023, 2022 and 2021, respectively;

● Adjustments to Accruals and Related Deferred Taxes — Adjustments to our accruals and related deferred taxes primarily due to the filing of our income tax returns, analysis of our deferred tax balances and uncertain tax positions, and changes in state and foreign laws resulted in an increase in our income tax expense of $1 million and $17 million for the years ended December 31, 2022 and 2021, respectively, and a reduction in our income tax expense of $3 million for the year ended December 31, 2020;

● Tax Implications of Divestitures – During 2021, we recognized a pre-tax gain from the recognition of cumulative translation adjustments on the divestiture of certain non-strategic Canadian operations.

This gain was not taxable, which benefited our effective income tax rate for the year ended December 31, 2021;

● Non-Deductible Transaction Costs — During 2020, we recognized the detrimental tax impact of $27 million of non-deductible transaction costs related to our acquisition of Advanced Disposal.

The tax rules require the capitalization of certain facilitative costs on the acquisition of stock of a company resulting in the applicable costs not being deductible for tax purposes;

● 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 in prior years.

Additionally, we will 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 income taxes.

● Tax Legislation — The Inflation Reduction Act of 2022 (“IRA”) was signed into law by President Biden on August 16, 2022 and contains several tax-related provisions, including with respect to (i) alternative fuel tax credits;

(ii) tax incentives for investments in renewable energy production, carbon capture, and other climate actions and (iii) the overall measurement of corporate income taxes.

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.

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

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 2025.

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.

The provisions of the IRA related to alternative fuel tax credits secure approximately $55 million of annual pre-tax benefit (recorded as a reduction in our operating expense) for tax credits in 2022, 2023 and 2024.

With respect to the investment tax credit, as expanded by 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 through 2026.

Recently, however, the IRS issued proposed regulations applicable to the investment tax credits that could call into question our ability to realize some, or all, of this tax benefit, which would negatively impact financial expectations in connection with our significant planned and ongoing investments in sustainability growth projects in our WM Renewable Energy segment.

The proposed regulations provide a public comment period, culminating in public hearings before the Treasury Department, to allow taxpayers to provide input prior to the issuance of final regulations.

In coordination with other members of the RNG industry, we are actively using this public comment period to work with external advisors, the U.S.

Congress, the current federal administration, and other biogas sector stakeholders to encourage the Treasury Department to further refine its analysis prior to publication of final regulations that more accurately reflect the express language and legislative intent of the statute with respect to the investment tax credit.

However, there is no guarantee that such efforts will be successful.

We expect that the production tax credit incentives for investments in renewable energy and carbon capture, as expanded by the IRA, will likely result in an incremental benefit to the Company, although at this time, the anticipated amount of such benefit has not been quantified.

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

Finally, in accordance with the IRA, we incurred a nondeductible excise tax of 1% on the net value of certain stock repurchases in 2023, which is reflected in the cost of purchasing the underlying shares as a component of treasury stock in our Consolidated Balance Sheet.

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

The Company operates in countries that have agreed to implement the global minimum tax, and the OECD continues to refine technical guidance for such.

At this time, we do not expect the 15% global minimum tax to have a material, if any, impact to our income taxes, and we will continue to monitor and evaluate the potential impact on our business in future periods.

See Note 8 to the Consolidated Financial Statements for more information related to income taxes.

Landfill and Environmental Remediation Discussion and Analysis

We owned or operated 254 solid waste landfills and five secure hazardous waste landfills as of December 31, 2022 and 255 solid waste landfills and five secure hazardous waste landfills as of December 31, 2021.

We owned or operated 258 solid waste landfills and five secure hazardous waste landfills as of December 31, 2023 and December 31, 2022.

For these landfills, the following table reflects changes in capacity, as measured in tons of waste, for the year ended December 31 and remaining airspace, measured in cubic yards of waste, as of December 31 (in millions):

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(iii) adjustments for differences between the airspace being pursued and airspace granted and (iv) decreases due to decisions to no longer pursue expansion permits, if any.

(b) We received expansion permits at 12 of our landfills during 2022 and seven of our landfills during 2021, demonstrating our continued success in working with municipalities and regulatory agencies to expand the disposal airspace of our existing landfills.

(b) We received expansion permits at 13 of our landfills during 2023 and 12 of our landfills during 2022, demonstrating our continued success in working with municipalities and regulatory agencies to expand the disposal airspace of our existing landfills.

(c) Changes in engineering estimates can result in changes to the estimated available remaining airspace of a landfill or changes in the utilization of such landfill airspace, affecting the number of tons that can be placed in the future.

Estimates of the amount of waste that can be placed in the future are reviewed annually by our engineers and are based on a number of factors, including standard engineering techniques and site-specific factors such as current and

projected mix of waste type;

initial and projected waste density;

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Solid waste landfills closed, divested or lease or other contractual agreement expired during related year

(a) As of December 31, 2022 and 2021, we had 15 landfills and 14 landfills, respectively, which were not accepting waste.

(b) In 2022, we (i) executed one new contractual agreement;

(ii) reopened one previously closed landfill;

(iii) developed one new landfill;

(iv) closed three landfills and (v) closed one landfill operated under contractual agreement.

(c) December 31, 2021 tons have been restated for comparability purposes by removing 1.6 million tons received at the landfill that were not depleted as they were used for beneficial purposes and generally were redirected from the permitted airspace to other areas of the landfill.

(a) As of December 31, 2023 and 2022, we had 17 landfills which were not accepting waste.

As of December 31, 2023, we owned or controlled the management of 237 sites with remedial activities, are in closure or have received a certification of closure or post-closure from the applicable regulatory agency.

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We also have liabilities for the remediation of properties that have incurred environmental damage, which generally was caused by operations or for damage caused by conditions that existed before we acquired operations or a site.

We recognize environmental remediation liabilities when we determine that the liability is probable and the estimated cost for the likely remedy can be reasonably estimated.

We recognize environmental remediation liabilities when we determine that the liability is probable and the cost for the likely remedy can be reasonably estimated.

The changes to landfill and environmental remediation liabilities for the year ended December 31, 2023 are reflected in the table below (in millions):

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Interest accretion

Revisions in estimates and interest rate assumptions (a)

Revisions in estimates and interest rate assumptions

Acquisitions, divestitures and other adjustments

December 31, 2023

(a) In 2021, the increase in our landfill liabilities for revisions in estimates and interest rate assumptions was $33 million.

The increase in our landfill liabilities in 2022 is primarily due to inflationary cost pressures that are expected to impact costs over the remaining landfill lives.

Landfill Operating Costs — The following table summarizes our landfill operating costs for the year ended December 31 (in millions):

Interest accretion on landfill liabilities

Interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets

Interest accretion on landfill and environmental remediation liabilities

Leachate and methane collection and treatment

Landfill remediation costs

Landfill remediation costs and discount rate adjustments to environmental remediation liabilities and recovery assets

Other landfill site costs

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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.

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

Summary of Contractual Obligations

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As of December 31, 2023, we had $154 million of accrued interest related to our debt obligations.

(d) Our unrecorded obligations represent purchase commitments from which we expect to realize an economic benefit in future periods.

We have also made certain guarantees that we do not expect to materially affect our current or future

financial position, results of operations or liquidity.

(d) Our obligations represent purchase commitments from which we expect to realize an economic benefit in future periods.

We have also made certain guarantees that we do not expect to materially affect our current or future financial position, results of operations or liquidity.

See Note 10 to the Consolidated Financial Statements for discussion of the nature and terms of our unconditional purchase obligations and guarantees.

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The components of our borrowings as of December 31, 2023 are described in Note 6 to the Consolidated Financial Statements.

As of December 31, 2022, we had approximately $3.1 billion of debt maturing within the next 12 months, including (i) $1.7 billion of short-term borrowings under our commercial paper program (net of related discount on issuance);

(ii) $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) $192 million of other debt with scheduled maturities within the next 12 months, including $65 million of tax-exempt bonds.

As of December 31, 2023, we had approximately $2.8 billion of debt maturing within the next 12 months, including (i) $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;

(ii) $859 million of short-term borrowings under our commercial paper program (net of related discount on issuance);

(iii) $175 million of other debt with scheduled maturities within the next 12 months, including $60 million of tax exempt bonds, and (iv) $156 million of 3.5% senior notes that mature in May 2024.

As of December 31, 2023, we have classified $2.4 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.

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The remaining $334 million of debt maturing in the next 12 months is classified as current obligations.

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 December 31, 2022, we had $1.0 billion of outstanding borrowings.

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

See Note 6 to the Consolidated Financial Statements for more information related to the debt transactions.

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 planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments.

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.

We have credit lines in place to support our liquidity and financial assurance needs.

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Other letter of credit lines (b)

(a) As of December 31, 2022, we had an unused and available credit capacity of $1.6 billion.

(b) As of December 31, 2022, these other letter of credit lines are uncommitted with terms extending through April 2024.

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 6 to the Consolidated Financial Statements for additional information.

(a) As of December 31, 2023 and 2022, we had an unused and available credit capacity of $2.5 billion and $1.6 billion, respectively.

(b) As of December 31, 2023, these other letter of credit lines are uncommitted with terms extending through December 2027.

Guarantor Financial Information

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Net cash used in financing activities

Net Cash Provided by Operating Activities — Our operating cash flows for 2022, as compared with 2021, increased by $198 million.

The increase was largely driven by increased earnings in our collection and disposal and WM Renewable Energy businesses.

Net Cash Provided by Operating Activities — Our operating cash flows increased in 2023, as compared with 2022, by $183 million primarily driven by higher earnings attributable to our Collection and Disposal businesses and lower income tax payments as a result of a deposit of approximately $103 million that was made to the IRS in 2022 related to a disputed tax matter discussed within Note 8 to the Consolidated Financial Statements.

These increases were partially offset

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

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

Our operating cash flows for 2022, as compared with 2021, increased by $198 million.

The increase was largely driven by increased earnings in our Collection and Disposal businesses and WM Renewable Energy segment.

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

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See Note 8 to the Consolidated Financial Statements for further details.

Our operating cash flows for 2021, as compared with 2020, increased by $935 million largely as a result of (i) an increase in earnings primarily attributable to our collection, disposal and recycling lines of business;

(ii) our acquisition of Advanced Disposal;

(iii) lower interest payments in 2021 primarily due to certain refinancing activities and the retirement of high-coupon debt during 2020 reducing our overall interest rates;

(iv) lower income taxes paid in 2021 and (v) favorable changes in our working capital, net of effects of acquisitions and divestitures.

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

These favorable impacts were partially offset by the timing of cash tax benefits received in 2020 associated with federal alternative fuel tax credits.

Net Cash Used in Investing Activities — The most significant items affecting the comparison of our investing cash flows for the periods presented are summarized below:

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The remaining spend is financing or operating activities related to the timing of contingent consideration paid.

Substantially all of these acquisitions are related to our Solid Waste business.

Substantially all of these acquisitions are related to our Collection and Disposal businesses.

Our acquisition spending in 2022 was primarily attributable to the purchase of a controlling interest in a business intended to accelerate our film and plastic wrap recycling capabilities.

Our acquisition spending in 2020 was primarily attributable to Advanced Disposal.

See Note 17 to the Consolidated Financial Statements for additional information.

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● Capital Expenditures — We used $2,895 million, $2,587 million and $1,904 million for capital expenditures in 2023, 2022 and 2021, respectively.

The increase in 2022 is primarily driven by our intentional investment in growth capital spending on recycling and renewable energy projects, as well as timing differences in our fixed asset purchases to support our ongoing operations.

The increase in 2021 is due in part to intentional steps the Company took to accelerate growth capital spending on recycling and renewable energy projects.

Additionally, in 2020 we took proactive steps to reduce the amount of capital spending required due to the decrease in volumes as a result of COVID-19.

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 continuous improvement through efficiency and innovation.

In addition, we continue to make progress on our planned investments to expand our renewable energy and recycling businesses.

We expect to spend between $2.0 billion and $2.1 billion on capital expenditures to support our normal course business in 2023.

Additionally, we expect to spend approximately $1.1 billion on capital expenditures for recycling and renewable energy growth projects in 2023.

● Proceeds from Divestitures — Proceeds from divestitures of businesses and other assets, net of cash divested, were $27 million, $96 million and $885 million in 2022, 2021 and 2020, respectively.

The increase in capital spending is primarily driven by our planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments, as well as inflationary increases in many fixed asset categories required to support ongoing operations and investments in the Company’s landfills to reduce greenhouse gas emissions.

The increase in 2022 is primarily driven by our planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments, as well as timing differences in our fixed asset purchases to support our Collection and Disposal businesses.

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.

The Company expects to invest $2.8 billion to $2.9 billion in growth investments across the recycling and renewable energy platforms from 2022 to 2026, which includes the $1.325 billion already invested in 2022 and 2023.

● Divestitures — Proceeds from divestitures of businesses and other assets, net of cash divested, were $78 million, $27 million and $96 million in 2023, 2022 and 2021, respectively.

In 2023, our proceeds are primarily the result of the sale of certain non-strategic assets.

In 2021, our proceeds are primarily the result of the sale of certain non-strategic Canadian operations.

In 2020, our proceeds included

$856 million related to the sale of assets required to be sold by the U.S.

Department of Justice in connection with our acquisition of Advanced Disposal.

The remaining amounts in 2022, 2021 and 2020 generally related to the sale of fixed assets.

● Other, Net — Our spending within other, net was $104 million, $126 million and $11 million in 2023, 2022 and 2021, respectively.

During 2023, 2022 and 2021, we used $61 million, $23 million and $32 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities.

In 2023, we used $20 million to make an initial cash payment associated with a low-income housing investment.

In 2022, we used $67 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.

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

Revolving credit facility

Commercial paper program (a)

364-day revolving credit facility (b)

Commercial paper program

Tax-exempt bonds

Revolving credit facility

Commercial paper program (a)

364-day revolving credit facility (b)

Advanced Disposal senior notes (c)

Commercial paper program

Tax-exempt bonds

Net cash borrowings (repayments)

(a) Commercial paper borrowings incurred in 2022 and 2021 were primarily to support acquisitions and general corporate purposes.

Commercial paper borrowings incurred in 2020 were used for the redemption of the SMR Notes and to partially fund our acquisition of Advanced Disposal.

(b) In November 2020, we terminated our 364-day revolving facility contemporaneously with repayment of all outstanding borrowings with proceeds from our November 2020 senior notes issuance.

(c) Advanced Disposal had certain outstanding senior notes which were redeemed in 2020 pursuant to an optional redemption feature as further discussed in Note 17 to the Consolidated Financial Statements.

Refer to Note 6 to the Consolidated Financial Statements for additional information related to our debt borrowings and repayments.

● Premiums and Other Paid on Early Extinguishment of Debt — During 2021, we paid premiums and other third-party costs of $211 million to retire certain high-coupon notes as discussed further in Note 6 to the Consolidated Financial Statements.

During 2020, we paid premiums of $30 million to redeem $3.0 billion of senior notes that contained a special mandatory redemption feature tied to the timing of the Advanced Disposal acquisition closing.

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

See Loss on Early Extinguishment of Debt, Net for further discussion.

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See Note 13 to the Consolidated Financial Statements for additional information.

We announced in December 2022 that the Board of Directors has authorized up to $1.5 billion in future share repurchases.

Any future share repurchases will be made at the discretion of management and will depend on factors similar to those considered by the Board of Directors in making dividend declarations and listed below, as well as market conditions.

We announced in December 2023 that the Board of Directors has authorized up to $1.5 billion in future share repurchases, excluding the 1% excise tax.

This new authorization supersedes and replaces remaining authority under the prior Board of Directors’ authorization for share repurchases announced in December 2022.

The amount of future share repurchases executed under our Board of Directors’ authorization is determined in management’s discretion, based on various factors, including our net earnings, financial condition and cash required for future business plans, growth and acquisitions.

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

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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.

(a) 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

In preparing our financial statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses.

We must make these estimates and

assumptions because certain information that we use is dependent on future events, cannot be calculated with precision from available data or simply cannot be calculated.

We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with precision from available data or simply cannot be calculated.

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

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The projection of these landfill costs is dependent, in part, on future events.

The remaining depletable basis of each landfill includes costs to develop a site to its remaining permitted and expansion airspace and includes amounts previously expended and capitalized, net of accumulated airspace depletion, and projections of future purchase and development costs.

The remaining depletable basis of each landfill

includes costs to develop a site to its remaining permitted and expansion airspace and includes amounts previously expended and capitalized, net of accumulated airspace depletion, and projections of future purchase and development costs.

Final Capping Costs — We estimate the cost for each final capping event based on the area to be capped and the capping materials and activities required.

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The nature of our operations, particularly with respect to the construction, operation and maintenance of our landfills subjects us to an array of laws and regulations relating to the protection of the environment.

Under current laws

and regulations, we may have liabilities for environmental damage caused by our operations, or for damage caused by conditions that existed before we acquired a site.

Under current laws and regulations, we may have liabilities for environmental damage caused by our operations, or for damage caused by conditions that existed before we acquired a site.

In addition to remediation activity required by state or local authorities, such liabilities include potentially responsible party (“PRP”) investigations.

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● The typical allocation of costs among PRPs, unless the actual allocation has been determined.

Refer to Note 10 to the Consolidated Financial Statements for additional information on our environmental liabilities.

Fair Value of Nonfinancial Assets and Liabilities

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In addition, management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace, or a landfill may be required to cease accepting waste, prior to receipt of the expansion permit.

However, such events occur in the ordinary course of business in the waste industry and do not necessarily result in impairment of our landfill assets because,

after consideration of all facts, such events may not affect our belief that we will ultimately obtain the expansion permit.

However, such events occur in the ordinary course of business in the waste industry and do not necessarily result in impairment of our landfill assets because, after consideration of all facts, such events may not affect our belief that we will ultimately obtain the expansion permit.

As a result, our tests of recoverability, which generally make use of a probability-weighted cash flow estimation approach, may indicate that no impairment loss should be recorded.

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We then apply that multiple to the reporting units’ earnings to estimate their fair values.

We believe that this approach may also be appropriate in certain circumstances because it provides a fair value estimate using valuation inputs from entities with operations and economic characteristics comparable to our reporting units.

We believe that this approach may

also be appropriate in certain circumstances because it provides a fair value estimate using valuation inputs from entities with operations and economic characteristics comparable to our reporting units.

Acquisitions — In accordance with the purchase method of accounting, the purchase price paid for an acquisition is allocated to the assets and liabilities acquired based upon their estimated fair values as of the acquisition date, with the excess of the purchase price over the net assets acquired recorded as goodwill.

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All acquisition-related transaction costs are expensed as incurred.

See Note 17 to the Consolidated Financial Statements for additional information related to our acquisitions, including our 2020 acquisition of Advanced Disposal.

See Note 17 to the Consolidated Financial Statements for additional information related to our acquisitions.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net .

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

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

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

Macroeconomic pressures, including inflation and rising interest rates, and market disruption resulting in labor, supply chain and transportation constraints have impacted our results.

Supply chain constraints have 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.

Our overall strategic pricing efforts are focused on recovering as much of the inflationary cost increases we experience in our business as possible by increasing our average unit rate, but such efforts may not be successful for various reasons including the pace of inflation, operating cost inefficiencies, contractual limitations, and market responses.

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.

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.

Refer to Item 1A.

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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-K

Item 7. Management’s Discussion and Analysis