Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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. 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.
Overview
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 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. and Canada. 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
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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.
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. 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 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 recycling facility and our disposal costs. 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.
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.
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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
The waste industry is a comparatively mature and stable industry. 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
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of waste at landfills. We monitor these developments to adapt our service offerings. As companies, individuals and communities look for ways to be more sustainable, we promote our comprehensive services that go beyond our core business of collecting and disposing of waste in order to meet their needs. This includes expanding traditional recycling services, increasing organics collection and processing, and expanding our renewable energy projects to meet the evolving needs of our diverse customer base. As 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 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. For further discussion see Item1. Business – Regulation – Recent Developments and Focus Areas in Policy and Regulation .
We encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, and to a much lesser extent, the nature of service offerings, particularly in the residential line of business. Our industry is directly affected by changes in general economic factors, including increases and decreases in consumer spending, business expansions and construction activity. These factors generally correlate to volumes of waste generated and impact our revenue. Negative economic conditions and other macroeconomic trends can and have caused customers to reduce their service needs. Such negative economic conditions, in addition to competitor actions, can impact our strategy to negotiate, renew, or expand service contracts and grow our business. We also encounter competition for acquisitions and growth opportunities. 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 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.
We believe the Company’s industry-leading asset network and strategic focus on investing in our people and our digital platform will give the Company the necessary tools to address the evolving challenges impacting the Company and our industry. In line with our commitment to continuous improvement and a differentiated customer experience, we remain focused on our automation and optimization investments to enhance our operational efficiency and change the way we interact with our customers. 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.
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. 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
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to protect against the down-side risk by spreading the inherent risk of changes in commodity prices across the vertically integrated value chain. The extent and duration of the impact of labor, supply chain, transportation and commodity price challenges are subject to numerous external factors beyond our control, including broader macroeconomic conditions; recessionary fears and/or an economic recession; size, location, and qualifications of the labor pool; wage and price structures; adoption of new or revised regulations; 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 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. During 2023, the Company allocated $2,895 million of available cash to capital expenditures. We also allocated $2,438 million of available cash to our shareholders during 2023 through dividends and common stock repurchases.
Key elements of our 2023 financial results include:
● 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 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 $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 $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 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 discussed above was partially offset by higher interest and income tax expense;
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● 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 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; and
● 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 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. Refer to Free Cash Flow below for our definition of free cash flow, additional information about our use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure.
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Results of Operations
Operating Revenues
The mix of operating revenues for the year ended December 31 are as follows (in millions):
Gross
Intercompany
Net
Operating
Operating
Operating
Revenues
Revenues(a)
Revenues
Year Ended December 31:
2023
Commercial
$
5,801
$
(692)
$
5,109
Industrial
3,836
(753)
3,083
Residential
3,474
(96)
3,378
Other collection
3,006
(220)
2,786
Total collection
16,117
(1,761)
14,356
Landfill
4,863
(1,611)
3,252
Transfer
2,293
(1,036)
1,257
Total Collection and Disposal
23,273
(4,408)
18,865
Recycling Processing and Sales
1,576
(312)
1,264
WM Renewable Energy
276
(3)
273
Corporate and Other
51
(27)
24
Total
$
25,176
$
(4,750)
$
20,426
2022
Commercial
$
5,450
$
(590)
$
4,860
Industrial
3,681
(656)
3,025
Residential
3,339
(75)
3,264
Other collection
2,683
(217)
2,466
Total collection
15,153
(1,538)
13,615
Landfill
4,597
(1,535)
3,062
Transfer
2,143
(977)
1,166
Total Collection and Disposal
21,893
(4,050)
17,843
Recycling Processing and Sales
1,760
(244)
1,516
WM Renewable Energy
315
(3)
312
Corporate and Other
50
(23)
27
Total
$
24,018
$
(4,320)
$
19,698
2021
Commercial
$
4,759
$
(476)
$
4,283
Industrial
3,210
(524)
2,686
Residential
3,181
(36)
3,145
Other collection
2,309
(179)
2,130
Total collection
13,459
(1,215)
12,244
Landfill
4,184
(1,434)
2,750
Transfer
2,023
(918)
1,105
Total Collection and Disposal
19,666
(3,567)
16,099
Recycling Processing and Sales
1,760
(232)
1,528
WM Renewable Energy
220
56
276
Corporate and Other
47
(19)
28
Total
$
21,693
$
(3,762)
$
17,931
(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.
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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):
2023 vs. 2022
2022 vs. 2021
As a % of
As a % of
As a % of
As a % of
Related
Total
Related
Total
Amount
Business(a)
Amount
Company(b)
Amount
Business(a)
Amount
Company(b)
Collection and disposal
$
911
5.4
%
$
1,025
6.7
%
Recycling Processing and Sales and WM Renewable Energy (c)(d)
(381)
(20.2)
67
3.5
Energy surcharge and mandated fees (d)(e)
(104)
(9.7)
426
65.6
Total average yield (f)
$
426
2.1
%
$
1,518
8.5
%
Volume (g)
150
0.8
233
1.3
Internal revenue growth
576
2.9
1,751
9.8
Acquisitions
186
0.9
62
0.4
Divestitures
(5)
—
(15)
(0.1)
Foreign currency translation
(29)
(0.1)
(31)
(0.2)
Total
$
728
3.7
%
$
1,767
9.9
%
(a) Calculated by dividing the increase or decrease for the current year by the prior year’s related business revenue adjusted to exclude the impacts of divestitures for the current year.
(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.
(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:
Average Yield
Collection and Disposal Average Yield — This measure reflects the effect on our revenue from the pricing activities of our collection, transfer and landfill operations, exclusive of volume changes. Revenue growth from Collection and Disposal average yield includes not only base rate changes and environmental and service fee fluctuations, but also (i) certain average price changes related to the overall mix of services, which are due to the types of services provided; (ii) changes in average price from new and lost business and (iii) price decreases to retain customers.
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The details of our revenue growth from Collection and Disposal average yield for the year ended December 31 are as follows (dollars in millions):
2023 vs. 2022
2022 vs. 2021
As a % of
As a % of
Related
Related
Amount
Business
Amount
Business
Commercial
$
321
6.5
%
$
406
9.2
%
Industrial
240
7.2
307
10.2
Residential
191
6.1
185
6.1
Total collection
752
6.3
898
8.2
Landfill
76
2.7
79
3.1
Transfer
83
7.5
48
4.5
Total Collection and Disposal
$
911
5.4
%
$
1,025
6.7
%
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. 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. 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. These amounts have not significantly impacted the change in revenue for the periods presented.
Volume
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 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.
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Acquisitions and Divestitures
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
Our operating expenses are comprised of (i) labor and related benefits costs (excluding labor costs associated with maintenance and repairs discussed below), which include salaries and wages, bonuses, related payroll taxes, insurance and benefits costs and the costs associated with contract labor; (ii) transfer and disposal costs, which include tipping fees paid to third-party disposal facilities and transfer stations; (iii) maintenance and repairs costs relating to equipment, vehicles and facilities and related labor costs; (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 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, 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. Variations in volumes year-over-year, as discussed above in Operating Revenues , in addition to cost inflation, affect the comparability of the components of our operating expenses.
The following table summarizes the major components of our operating expenses for the year ended December 31 (dollars in millions and as a percentage of revenues):
2023
2022
2021
Labor and related benefits
$
3,669
18.0
%
$
3,452
17.5
%
$
3,223
18.0
%
Transfer and disposal costs
1,273
6.2
1,215
6.2
1,161
6.5
Maintenance and repairs
1,978
9.7
1,835
9.3
1,596
8.9
Subcontractor costs
2,185
10.7
2,006
10.2
1,766
9.9
Cost of goods sold
769
3.8
973
4.9
936
5.2
Fuel
501
2.4
592
3.0
393
2.2
Disposal and franchise fees and taxes
736
3.6
720
3.7
698
3.9
Landfill operating costs
453
2.2
421
2.1
412
2.3
Risk management
320
1.6
348
1.8
344
1.9
Other
722
3.5
732
3.7
582
3.2
$
12,606
61.7
%
$
12,294
62.4
%
$
11,111
62.0
%
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.
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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 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; (iii) labor cost increases for our technicians, including higher overtime; (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.
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. In 2023, the U.S Treasury bond rate remained flat versus a significant increase in 2022, which decreased our remediation
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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; (iii) higher utility costs at our facilities and (iv) an increase in business travel in 2022. Additionally, a favorable litigation settlement in 2021 impacted the comparison. Net gains on sales of certain assets during each year also impacted the comparability of the reported periods.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist of (i) labor and related benefits costs, which include salaries, bonuses, related insurance and benefits, contract labor, payroll taxes and equity-based compensation; (ii) professional fees, which include fees for consulting, legal, audit and tax services; (iii) provision for bad debts, which includes allowances for uncollectible customer accounts and collection fees and (iv) other selling, general and administrative expenses, which include, among other costs, facility-related expenses, voice and data telecommunication, advertising, bank charges, computer costs, travel and entertainment, rentals, postage and printing. In addition, the financial impacts of litigation reserves generally are included in our “Other” selling, general and administrative expenses.
The following table summarizes the major components of our selling, general and administrative expenses for the year ended December 31 (dollars in millions and as a percentage of revenues):
2023
2022
2021
Labor and related benefits
$
1,205
5.9
%
$
1,195
6.1
%
$
1,215
6.8
%
Professional fees
228
1.1
268
1.4
228
1.3
Provision for bad debts
56
0.3
50
0.2
37
0.2
Other
437
2.1
425
2.1
384
2.1
$
1,926
9.4
%
$
1,938
9.8
%
$
1,864
10.4
%
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; (ii) higher annual incentive compensation costs and merit increases for our employees; (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 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.
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Significant items affecting the comparison of our selling, general and administrative expenses between reported periods include:
Labor and Related Benefits — The increase in labor and related benefits costs 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.
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.
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
The following table summarizes the components of our depreciation, depletion and amortization expenses for the year ended December 31 (dollars in millions and as a percentage of revenues):
2023
2022
2021
Depreciation of tangible property and equipment
$
1,197
5.9
%
$
1,155
5.9
%
$
1,125
6.2
%
Depletion of landfill airspace
745
3.6
754
3.8
731
4.1
Amortization of intangible assets
129
0.6
129
0.6
143
0.8
$
2,071
10.1
%
$
2,038
10.3
%
$
1,999
11.1
%
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 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.
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(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net
The following table summarizes the major components of (gain) loss from divestitures, asset impairments and unusual items, net for the year ended December 31 (in millions):
2023
2022
2021
Gain from divestitures, net
$
—
$
(5)
$
(44)
Asset impairments
275
50
8
Other, net
(32)
17
20
$
243
$
62
$
(16)
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.
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Income from Operations
The following table summarizes income from operations for the year ended December 31 (dollars in millions):
Period-to-
Period-to-
Period
Period
2023
Change
2022
Change
2021
Collection and Disposal:
East Tier
$
2,446
$
268
12.3
%
$
2,178
$
223
11.4
%
$
1,955
West Tier
2,383
201
9.2
2,182
243
12.5
1,939
Other Ancillary
(8)
(8)
*
—
18
*
(18)
Collection and Disposal
4,821
461
10.6
4,360
484
12.5
3,876
Recycling Processing and Sales
(44)
(172)
*
128
(89)
(41.0)
217
WM Renewable Energy
79
(53)
(40.2)
132
24
22.2
108
Corporate and Other
(1,281)
(26)
2.1
(1,255)
(19)
1.5
(1,236)
Total (a)
$
3,575
$
210
6.2
%
$
3,365
$
400
13.5
%
$
2,965
Percentage of revenues
17.5
%
17.1
%
16.5
%
* Percentage change does not provide a meaningful comparison.
(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 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
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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 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 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.
Equity in Net Losses of Unconsolidated Entities
We recognized equity in net losses of unconsolidated entities of $60 million, $67 million and $36 million in 2023, 2022 and 2021, respectively. The losses for each period were primarily related to our noncontrolling interests in entities established to invest in and manage low-income housing properties. We generate tax benefits, including tax credits, from the losses incurred from these investments. 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
We recorded income tax expense of $745 million, $678 million and $532 million in 2023, 2022 and 2021, respectively, resulting in effective income tax rates of 24.7%, 23.2% and 22.6% for the years ended December 31, 2023, 2022 and 2021, respectively. 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 $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;
● 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
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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. and Canada, as well as other state and local jurisdictions. We are currently under audit by various taxing authorities and our audits are in various stages of completion. 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; and
● 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 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.
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Landfill and Environmental Remediation Discussion and Analysis
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):
2023
2022
Remaining
Remaining
Permitted
Expansion
Total
Permitted
Expansion
Total
Capacity
Capacity
Capacity
Capacity
Capacity
Capacity
Balance as of beginning of year (in tons)
5,165
190
5,355
4,889
174
5,063
Acquisitions, divestitures, newly permitted landfills and closures
—
—
—
163
—
163
Changes in expansions pursued (a)
—
138
138
—
62
62
Expansion permits granted (b)
168
(168)
—
57
(57)
—
Depletable tons received
(123)
—
(123)
(125)
—
(125)
Changes in engineering estimates and other (c) (d)
1
1
2
181
11
192
Balance as of end of year (in tons) (e)
5,211
161
5,372
5,165
190
5,355
Balance as of end of year (in cubic yards) (e)
5,095
160
5,255
5,079
180
5,259
(a) Amounts reflected here relate to the combined impacts of (i) new expansions pursued; (ii) increases or decreases in the airspace being pursued for ongoing expansion efforts; (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 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; estimated number of years of life remaining; depth of underlying waste; anticipated access to moisture through precipitation or recirculation of landfill leachate and operating practices. We continually focus on improving the utilization of airspace through efforts that may include recirculating landfill leachate where allowed by permit; optimizing the placement of daily cover materials and increasing initial compaction through improved landfill equipment, operations and training.
(d) In 2022, a change in accounting estimate resulted in an increase of 190 million tons across certain landfills.
(e) See Note 2 to the Consolidated Financial Statements for discussion of converting remaining cubic yards of airspace to tons of capacity.
The depletable tons received at our landfills for the year ended December 31 are shown below (tons in thousands):
2023
2022
# of
Depletable
Tons per
# of
Depletable
Tons per
Sites
Tons
Day
Sites
Tons
Day
Solid waste landfills (a)
258
122,141
450
258
123,462
452
Hazardous waste landfills
5
658
2
5
652
2
263
122,799
452
263
124,114
454
Solid waste landfills closed, divested or lease or other contractual agreement expired during related year
—
—
4
633
122,799
124,747
(a) As of December 31, 2023 and 2022, we had 17 landfills which were not accepting waste.
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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.
Based on remaining permitted airspace as of December 31, 2023 and projected annual disposal volume, the weighted average remaining landfill life for all of our owned or operated landfills is approximately 38 years. Many of our landfills have the potential for expanded airspace beyond what is currently permitted. We monitor the availability of permitted airspace at each of our landfills and evaluate whether to pursue an expansion at a given landfill based on estimated future disposal volume, disposal prices, construction and operating costs, remaining airspace and likelihood of obtaining an expansion permit. We are seeking expansion permits at 16 of our landfills that meet the expansion criteria outlined in the Critical Accounting Estimates and Assumptions — Landfills section below. Although no assurances can be made that all future expansions will be permitted or permitted as designed, the weighted average remaining landfill life for all owned or operated landfills is approximately 39 years when considering remaining permitted airspace, expansion airspace and projected annual disposal volume.
The number of landfills owned or operated as of December 31, 2023, segregated by their estimated operating lives based on remaining permitted and expansion airspace and projected annual disposal volume, was as follows:
# of Landfills
0 to 5 years
31
6 to 10 years
22
11 to 20 years
50
21 to 40 years
66
41+ years
94
Total
263
(a)
(a) Of the 263 landfills, 222 are owned, 29 are operated under lease agreements and 12 are operated under other contractual agreements. For the landfills not owned, we are usually responsible for final capping, closure and post-closure obligations.
Landfill Assets — We capitalize various costs that we incur to prepare a landfill to accept waste. These costs generally include expenditures for land (including the landfill footprint and required landfill buffer property), permitting, excavation, liner material and installation, landfill leachate collection systems, landfill gas collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized interest, and on-site road construction and other capital infrastructure costs. The cost basis of our landfill assets also includes estimates of future costs associated with landfill final capping, closure and post-closure activities, which are discussed further below.
The changes to the cost basis of our landfill assets and accumulated landfill airspace depletion for the year ended December 31, 2023 are reflected in the table below (in millions):
Accumulated
Net Book
Cost Basis of
Landfill Airspace
Value of
Landfill Assets
Depletion
Landfill Assets
December 31, 2022
$
18,526
$
(10,896)
$
7,630
Capital additions
722
—
722
Asset retirement obligations incurred and capitalized
79
—
79
Depletion of landfill airspace
—
(745)
(745)
Foreign currency translation
28
(12)
16
Asset retirements and other adjustments
118
10
128
December 31, 2023
$
19,473
$
(11,643)
$
7,830
As of December 31, 2023, we estimate that we will spend approximately $795 million in 2024, and approximately $1.7 billion in 2025 and 2026 combined, for the construction and development of our landfill assets. The specific timing of landfill capital spending is dependent on future events and spending estimates are subject to change due to fluctuations in landfill waste volumes, changes in environmental requirements and other factors impacting landfill operations.
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Landfill and Environmental Remediation Liabilities — As we accept waste at our landfills, we incur significant asset retirement obligations, which include liabilities associated with landfill final capping, closure and post-closure activities. These liabilities are accounted for in accordance with authoritative guidance on accounting for asset retirement obligations and are discussed in Note 2 to the Consolidated Financial Statements. 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 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):
Environmental
Landfill
Remediation
December 31, 2022
$
2,664
$
204
Obligations incurred and capitalized
79
—
Obligations settled
(147)
(27)
Interest accretion
124
6
Revisions in estimates and interest rate assumptions
131
26
Acquisitions, divestitures and other adjustments
2
—
December 31, 2023
$
2,853
$
209
Landfill Operating Costs — The following table summarizes our landfill operating costs for the year ended December 31 (in millions):
2023
2022
2021
Interest accretion on landfill and environmental remediation liabilities
$
130
$
112
$
111
Leachate and methane collection and treatment
196
193
183
Landfill remediation costs and discount rate adjustments to environmental remediation liabilities and recovery assets
7
(2)
1
Other landfill site costs
120
118
117
Total landfill operating costs
$
453
$
421
$
412
Depletion of Landfill Airspace — Depletion of landfill airspace, which is included as a component of depreciation, depletion and amortization expenses, includes the following:
● the depletion of landfill capital costs, including (i) costs that have been incurred and capitalized and (ii) estimated future costs for landfill development and construction required to develop our landfills to their remaining permitted and expansion airspace; and
● the depletion of asset retirement costs arising from landfill final capping, closure and post-closure obligations, including (i) costs that have been incurred and capitalized and (ii) projected asset retirement costs.
Depletion expense is recorded on a units-of-consumption basis, applying cost as a rate per ton. The rate per ton is calculated by dividing each component of the depletable basis of a landfill (net of accumulated depletion) by the number of tons needed to fill the corresponding asset’s remaining permitted and expansion airspace. Landfill capital costs and closure and post-closure asset retirement costs are generally incurred to support the operation of the landfill over its entire operating life and are, therefore, depleted on a per-ton basis using a landfill’s total permitted and expansion airspace. Final capping asset retirement costs are related to a specific final capping event and are, therefore, depleted on a per-ton basis using each discrete final capping event’s estimated permitted and expansion airspace. Accordingly, each landfill has multiple per-ton depletion rates.
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The following table presents our landfill airspace depletion expense on a per-ton basis for the year ended December 31:
2023
2022
2021
Depletion of landfill airspace (in millions)
$
745
$
754
$
731
Tons received, net of redirected waste (in millions)
123
125
124
Average landfill airspace depletion expense per ton
$
6.07
$
6.05
$
5.90
Different per-ton depletion rates are applied at each of our 263 landfills, and per-ton depletion rates vary significantly from one landfill to another due to (i) inconsistencies that often exist in construction costs and provincial, state and local regulatory requirements for landfill development and landfill final capping, closure and post-closure activities and (ii) differences in the cost basis of landfills that we develop versus those that we acquire. Accordingly, our landfill airspace depletion expense measured on a per-ton basis can fluctuate due to changes in the mix of volumes we receive across the Company each year.
Liquidity and Capital Resources
The Company consistently generates annual cash flow from operations that meets and exceeds our working capital needs, allows for payment of our dividends, investment in the business through capital expenditures and tuck-in acquisitions, and funding of strategic sustainability growth investments. We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business requirements that may arise during the year. The Company believes that its investment grade credit ratings, 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
The following table summarizes our significant contractual obligations as of December 31, 2023 (other than recorded obligations related to liabilities associated with environmental remediation costs and non-cancelable operating lease obligations, which are discussed further in Notes 3 and 7 to the Consolidated Financial Statements, respectively) and the anticipated effect of these obligations on our liquidity in future years (in millions):
2024
2025
2026
2027
2028
Thereafter
Total
Recorded Obligations:
Final capping, closure and post-closure liabilities (a)
$
143
$
254
$
178
$
206
$
154
$
3,480
$
4,415
Debt payments (b)
1,192
1,355
713
1,198
892
11,002
16,352
Unrecorded Obligations:
Interest on debt (c)
566
544
518
486
448
3,340
5,902
Estimated unconditional purchase obligations (d)
173
164
133
51
44
470
1,035
Anticipated liquidity impact as of December 31, 2023
$
2,074
$
2,317
$
1,542
$
1,941
$
1,538
$
18,292
$
27,704
(a) Includes liabilities for final capping, closure and post-closure costs recorded in our Consolidated Balance Sheet as of December 31, 2023, without the impact of discounting and inflation. Our recorded liabilities for final capping, closure and post-closure costs will increase as we continue to place additional tons within the permitted airspace at our landfills.
(b) These amounts represent the scheduled principal payments based on their contractual maturities related to our long-term debt and financing leases, excluding interest. Refer to Note 6 to the Consolidated Financial Statements for additional information regarding our debt obligations.
(c) Interest on our fixed-rate debt was calculated based on contractual rates and interest on our variable-rate debt was calculated based on interest rates as of December 31, 2023. As of December 31, 2023, we had $154 million of accrued interest related to our debt obligations.
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(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.
Summary of Cash and Cash Equivalents, Restricted Funds and Debt Obligations
The following is a summary of our cash and cash equivalents, restricted funds and debt balances as of December 31 (in millions):
2023
2022
Cash and cash equivalents
$
458
$
351
Restricted funds:
Insurance reserves
$
376
$
313
Final capping, closure, post-closure and environmental remediation funds
119
113
Other
17
5
Total restricted funds (a)
$
512
$
431
Debt:
Current portion
$
334
$
414
Long-term portion
15,895
14,570
Total debt
$
16,229
$
14,984
(a)
As of December 31, 2023 and 2022, $90 million and $83 million, respectively, of these account balances was included in other current assets in our Consolidated Balance Sheets.
Debt — We use long-term borrowings in addition to the cash we generate from operations as part of our overall financial strategy to support and grow our business. We primarily use senior notes and tax-exempt bonds to borrow on a long-term basis, but we also use other instruments and facilities, when appropriate. The components of our borrowings as of December 31, 2023 are described in Note 6 to the Consolidated Financial Statements.
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. and Canadian revolving credit facility (“$3.5 billion revolving credit facility”). The remaining $334 million of debt maturing in the next 12 months is classified as current obligations.
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.
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We have credit lines in place to support our liquidity and financial assurance needs. The following table summarizes our outstanding letters of credit, categorized by type of facility as of December 31 (in millions):
2023
2022
Revolving credit facility (a)
$
180
$
166
Other letter of credit lines (b)
834
800
$
1,014
$
966
(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
WM Holdings has fully and unconditionally guaranteed all of WMI’s senior indebtedness. WMI has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WMI’s other subsidiaries have guaranteed any of WMI’s or WM Holdings’ debt. In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WMI and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WMI and WM Holdings on a combined basis after elimination of intercompany transactions between WMI and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):
December 31,
2023
Balance Sheet Information:
Current assets
$
276
Noncurrent assets
25
Current liabilities
336
Noncurrent liabilities:
Advances due to affiliates
21,228
Other noncurrent liabilities
13,798
Year Ended
December 31, 2023
Income Statement Information:
Revenue
$
—
Operating income
—
Net loss
348
Summary of Cash Flow Activity
The following is a summary of our cash flows for the year ended December 31 (in millions):
2023
2022
2021
Net cash provided by operating activities
$
4,719
$
4,536
$
4,338
Net cash used in investing activities
$
(3,091)
$
(3,063)
$
(1,894)
Net cash used in financing activities
$
(1,524)
$
(1,216)
$
(2,900)
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
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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. Partially offsetting our increase in cash from operating activities were higher income tax payments as a result of higher earnings in 2022 and a deposit of approximately $103 million that was made to the 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 details.
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:
● Acquisitions — Our spending on acquisitions was $173 million, $377 million and $76 million in 2023, 2022 and 2021, respectively, of which $170 million, $377 million and $75 million, respectively, are considered cash used in investing activities. 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 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. See Note 17 to the Consolidated Financial Statements for additional information. We continue to focus on accretive acquisitions and growth opportunities that will enhance and expand our existing service offerings.
● 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 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.
● 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. Our 2021 cash spend was partially offset by proceeds received from the sale of an equity method investment.
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Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the periods presented are summarized below:
● Debt Borrowings (Repayments) — The following summarizes our cash borrowings and repayments of debt for the year ended December 31 (in millions):
2023
2022
2021
Borrowings :
Commercial paper program
$
17,799
$
6,596
$
6,831
Term loan
—
1,000
—
Senior notes
3,207
992
942
Tax-exempt bonds
300
100
175
$
21,306
$
8,688
$
7,948
Repayments :
Commercial paper program
$
(18,709)
$
(6,664)
$
(6,872)
Senior notes
(500)
(500)
(1,289)
Term loan
(1,000)
—
—
Tax-exempt bonds
(65)
(71)
(127)
Other debt
(120)
(93)
(116)
$
(20,394)
$
(7,328)
$
(8,404)
Net cash borrowings (repayments)
$
912
$
1,360
$
(456)
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. See Loss on Early Extinguishment of Debt, Net for further discussion.
● Common Stock Repurchase Program — For the periods presented, all share repurchases have been made in accordance with financial plans approved by our Board of Directors. We allocated $1,302 million, $1,500 million and $1,350 million of available cash to common stock repurchases during 2023, 2022, and 2021, respectively. See Note 13 to the Consolidated Financial Statements for additional information.
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. Cash dividends declared and paid were $1,136 million in 2023, or $2.80 per common share, $1,077 million in 2022, or $2.60 per common share, and $970 million in 2021, or $2.30 per common share.
In December 2023, we announced that our Board of Directors expects to increase the quarterly dividend from $0.70 to $0.75 per share for dividends declared in 2024. However, all future dividend declarations are at the discretion of the Board of Directors and depend on various factors, including our net earnings, financial condition, cash required for future business plans, growth and acquisitions and other factors the Board of Directors may deem relevant.
● Exercise of Common Stock Options — The exercise of common stock options generated financing cash inflows of $44 million, $44 million and $66 million from the exercise of 597,000, 675,000 and 962,000 of employee stock options during 2023, 2022 and 2021, respectively.
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Free Cash Flow
We are presenting free cash flow, which is a non-GAAP measure of liquidity, in our disclosures because we use this measure in the evaluation and management of our business. We define free cash flow as net cash provided by operating activities, less capital expenditures, plus proceeds from divestitures of businesses and other assets, net of cash divested. We believe it is indicative of our ability to pay our quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay our debt obligations. Free cash flow is not intended to replace net cash provided by operating activities, which is the most comparable GAAP measure. We believe free cash flow gives investors useful insight into how we view our liquidity, but the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.
Our calculation of free cash flow and reconciliation to net cash provided by operating activities is shown in the table below for the year ended December 31 (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:
2023
2022
2021
Net cash provided by operating activities
$
4,719
$
4,536
$
4,338
Capital expenditures to support the business
(2,131)
(2,026)
(1,665)
Capital expenditures - sustainability growth investments (a)
(764)
(561)
(239)
Total capital expenditures
(2,895)
(2,587)
(1,904)
Proceeds from divestitures of businesses and other assets, net of cash divested
78
27
96
Free cash flow
$
1,902
$
1,976
$
2,530
(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. In some cases, these estimates are difficult to determine, and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, long-lived asset impairments, intangible asset impairments and the fair value of assets and liabilities acquired in business combinations. Each of these items is discussed in additional detail below and in Note 2 to the Consolidated Financial Statements. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
Landfills
Accounting for landfills requires that significant estimates and assumptions be made regarding (i) the cost to construct and develop each landfill asset; (ii) the estimated fair value of final capping, closure and post-closure asset retirement obligations, which must consider both the expected cost and timing of these activities and (iii) the determination of each landfill’s remaining permitted and expansion airspace.
Landfill Costs — We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion airspace. This estimate includes such costs as landfill liner material and installation, excavation for airspace, landfill leachate collection systems, landfill gas collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized interest, on-site road construction and other capital infrastructure costs. Additionally, landfill development includes all land purchases for the landfill footprint and landfill buffer property. The projection of these landfill costs is dependent, in part, on future events. The remaining depletable basis of each landfill
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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. The estimates also consider when these costs are anticipated to be paid and factor in inflation and discount rates. Our engineering personnel allocate landfill final capping costs to specific final capping events and the capping costs are depleted as waste is disposed of at the landfill. We review these costs annually, or more often if significant facts change. Changes in estimates, such as timing or cost of construction, for final capping events immediately impact the required liability and the corresponding asset. When the change in estimate relates to a fully consumed landfill, the adjustment to the asset must be depleted immediately through expense. When the change in estimate relates to a final capping event at a landfill with remaining airspace, the adjustment to the asset is recognized in income prospectively as a component of landfill airspace depletion.
Closure and Post-Closure Costs — We base our estimates for closure and post-closure costs on our interpretations of permit and regulatory requirements for closure and post-closure monitoring and maintenance. The estimates for landfill closure and post-closure costs also consider when the costs are anticipated to be paid and factor in inflation and discount rates. The possibility of changing legal and regulatory requirements and the forward-looking nature of these types of costs make any estimation or assumption less certain. Changes in estimates for closure and post-closure events immediately impact the required liability and the corresponding asset. When the change in estimate relates to a fully consumed landfill, the adjustment to the asset must be depleted immediately through expense. When the change in estimate relates to a landfill with remaining airspace, the adjustment to the asset is recognized in income prospectively as a component of landfill airspace depletion.
Remaining Permitted Airspace — Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey, which is used to compare the existing landfill topography to the expected final landfill topography.
Expansion Airspace — We also include currently unpermitted expansion airspace in our estimate of remaining permitted and expansion airspace in certain circumstances. First, for unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, we must believe that obtaining the expansion permit is likely. Second, we must generally expect the initial expansion permit application to be submitted within one year and the final expansion permit to be received within five years, in addition to meeting the following criteria:
● Personnel are actively working on the expansion of an existing landfill, including efforts to obtain land use and local, state or provincial approvals;
● We have a legal right to use or obtain land to be included in the expansion plan;
● There are no significant known technical, legal, community, business, or political restrictions or similar issues that could negatively affect the success of such expansion; and
● Financial analysis has been completed based on conceptual design, and the results demonstrate that the expansion meets Company criteria for investment.
These criteria are evaluated by our field-based engineers, accountants, managers and others to identify potential obstacles to obtaining the permits. Once the unpermitted airspace is included, our policy provides that airspace may continue to be included in remaining permitted and expansion airspace even if certain of these criteria are no longer met as long as we continue to believe we will ultimately obtain the permit, based on the facts and circumstances of a specific landfill. In these circumstances, continued inclusion must be approved through a landfill-specific review process that includes approval by our Chief Financial Officer on a quarterly basis.
When we include the expansion airspace in our calculations of remaining permitted and expansion airspace, we also include the projected costs for development, as well as the projected asset retirement costs related to final capping, closure and post-closure of the expansion in the depletable basis of the landfill.
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Once the remaining permitted and expansion airspace is determined in cubic yards, an airspace utilization factor (“AUF”) is established to calculate the remaining permitted and expansion capacity in tons. The AUF is established using the measured density obtained from previous annual surveys and is then adjusted to account for future settlement. The amount of settlement that is forecasted will consider several site-specific factors including current and projected mix of waste type, initial and projected waste density, estimated number of years of life remaining, depth of underlying waste, anticipated access to moisture through precipitation or recirculation of landfill leachate and operating practices. In addition, the initial selection of the AUF is subject to a subsequent multi-level review by our engineering group and the AUF used is reviewed on a periodic basis and revised as necessary. Our historical experience generally indicates that the impact of settlement at a landfill is greater later in the life of the landfill when the waste placed at the landfill approaches its highest point under the permit requirements.
After determining the costs and remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates that will be expensed as waste is received and deposited at the landfill by dividing the costs by the corresponding number of tons. We calculate per ton depletion rates for each landfill for assets associated with each final capping event, for assets related to closure and post-closure activities and for all other costs capitalized or to be capitalized in the future. These rates per ton are updated annually, or more often, as significant facts change.
It is possible that actual results, including the amount of costs incurred, the timing of final capping, closure and post-closure activities, our airspace utilization or the success of our expansion efforts could ultimately turn out to be significantly different from our estimates and assumptions. To the extent that such estimates, or related assumptions, prove to be significantly different than actual results, lower earnings may be experienced due to higher depletion rates or higher expenses; or higher earnings may result if the opposite occurs. Most significantly, if it is determined that expansion capacity should no longer be considered in calculating the recoverability of a landfill asset, we may be required to recognize an asset impairment or incur significantly higher depletion expense. If at any time management makes the decision to abandon the expansion effort, the capitalized costs related to the expansion effort are expensed immediately.
Environmental Remediation Liabilities
A significant portion of our operating costs and capital expenditures could be characterized as costs of environmental protection. 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. In addition to remediation activity required by state or local authorities, such liabilities include potentially responsible party (“PRP”) investigations. The costs associated with these liabilities can include settlements, certain legal and consultant fees, as well as incremental internal and external costs directly associated with site investigation and clean up.
Where it is probable that a liability has been incurred, we estimate costs required to remediate sites based on site-specific facts and circumstances. We routinely review and evaluate sites that require remediation and determine our estimated cost for the likely remedy based on a number of estimates and assumptions. Next, we review the same type of information with respect to other named and unnamed PRPs. Estimates of the costs for the likely remedy are then either developed using our internal resources or by third-party environmental engineers or other service providers. Internally developed estimates are based on:
● Management’s judgment and experience in remediating our own and unrelated parties’ sites;
● Information available from regulatory agencies as to costs of remediation;
● The number, financial resources and relative degree of responsibility of other PRPs who may be liable for remediation of a specific site; and
● 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.
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Fair Value of Nonfinancial Assets and Liabilities
Significant estimates are made in determining the fair value of long-lived tangible and intangible assets (i.e., property and equipment, intangible assets and goodwill) during the impairment evaluation process. In addition, the majority of assets acquired and liabilities assumed in a business combination are required to be recognized at fair value under the relevant accounting guidance.
Fair value is computed using several factors, including projected future operating results, economic projections, anticipated future cash flows, comparable marketplace data and the cost of capital. There are inherent uncertainties related to these factors and to our judgment in applying them in our analysis. However, we believe our methodology for estimating the fair value of our reporting units is reasonable.
Property and Equipment, Including Landfills and Definite-Lived Intangible Assets — We monitor the carrying value of our long-lived assets for potential impairment on an ongoing basis and test the recoverability of such assets generally using significant unobservable (“Level 3”) inputs whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or changes in circumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value and the difference is recorded in the period that the impairment indicator occurs. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset or asset group; (ii) actual third-party valuations and/or (iii) information available regarding the current market for similar assets. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired.
The assessment of impairment indicators and the recoverability of our capitalized costs associated with landfills and related expansion projects require significant judgment due to the unique nature of the waste industry, the highly regulated permitting process and the sensitive estimates involved. During the review of a landfill expansion application, a regulator may initially deny the expansion application although the expansion permit is ultimately granted. 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. 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.
Indefinite-Lived Intangible Assets, Including Goodwill — At least annually using a measurement date of October 1, and more frequently if warranted, we assess the indefinite-lived intangible assets including the goodwill of our reporting units for impairment using Level 3 inputs.
We first perform a qualitative assessment to determine if it was more likely than not that the fair value of a reporting unit is less than its carrying value. If the assessment indicates a possible impairment, we complete a quantitative review, comparing the estimated fair value of a reporting unit to its carrying amount, including goodwill. An impairment charge is recognized if the asset’s estimated fair value was less than its carrying amount. Fair value is typically estimated using an income approach using Level 3 inputs. However, when appropriate, we may also use a market approach. The income approach is based on the long-term projected future cash flows of the reporting units. We discount the estimated cash flows to present value using a weighted average cost of capital that considers factors such as market assumptions, the timing of the cash flows and the risks inherent in those cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting units’ expected long-term performance considering the economic and market conditions that generally affect our business. The market approach estimates fair value by measuring the aggregate market value of publicly-traded companies with similar characteristics to our business as a multiple of their reported earnings. We then apply that multiple to the reporting units’ earnings to estimate their fair values. We believe that this approach may
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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. When we are in the process of valuing all of the assets and liabilities acquired in an acquisition, there can be subsequent adjustments to our estimates of fair value and resulting preliminary purchase price allocation. Generally, the valuation of our acquired asset and liabilities rely on complex estimates and assumptions.
Acquisition-date fair value estimates are revised as necessary if, and when, additional information regarding these contingencies becomes available to further define and quantify assets acquired and liabilities assumed. Subsequent to finalization of purchase accounting, these revisions are accounted for as adjustments to income from operations. All acquisition-related transaction costs are expensed as incurred. See Note 17 to the Consolidated Financial Statements for additional information related to our acquisitions.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net .
Inflation
Macroeconomic pressures, including inflation and rising interest rates, and market disruption resulting in labor, supply chain and transportation constraints have impacted our results. 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. 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. Risk Factors for further discussion.
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