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, 2020. This discussion may contain forward-looking statements that anticipate results based on management’s plans that are subject to uncertainty. We discuss in more detail various factors that could cause actual results to differ materially from expectations in Item 1A. Risk Factors. 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 waste management environmental services, providing services throughout the United States (“U.S.”) and Canada. We partner with our residential, commercial, industrial and municipal customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. We own or operate the largest network of landfills in 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. We also use waste to create energy, recovering the gas produced naturally as waste decomposes in landfills and using the gas in generators to make electricity. Additionally, we are a leading recycler in the U.S. and Canada, handling materials that include paper, cardboard, glass, plastic and metal. Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provides collection, transfer, disposal, and recycling and resource recovery services. Through our subsidiaries, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S. Consistent with our Company’s long-standing commitment to corporate sustainability and environmental stewardship, we have published our 2020 Sustainability Report, which details our commitment to help make the communities in which we live and work safe, resilient and sustainable. The information in this report can be found at https://sustainability.wm.com but does not constitute a part of, and is not incorporated by reference into, this Annual Report on Form 10-K. For further discussion see section “Federal, State and Local Climate Change Initiatives; Sustainability” in Item 1.

Our Solid Waste operating revenues are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations. Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the disposal facility or material recovery facility and our disposal costs. 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, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Recycling revenues generally consist of tipping fees and the sale of recycling commodities to third parties. The fees we charge for our services generally include our environmental fee, fuel surcharge and regulatory recovery fee which are intended to pass through to customers direct and indirect costs incurred. We also provide additional services that are not managed through our Solid Waste business, described under Results of Operations below.

Acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”)

On October 30, 2020, we completed our acquisition of all outstanding shares of Advanced Disposal for $30.30 per share in cash, pursuant to an Agreement and Plan of Merger dated April 14, 2019, as amended on June 24, 2020. Total enterprise value of the acquisition was $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt. This acquisition grows our footprint and allows us to provide differentiated, sustainable waste management and recycling services to approximately three million new commercial, industrial and residential customers primarily located in the Eastern half of the U.S. The acquisition was funded using our $3.0 billion, 364-day, U.S. revolving credit facility (“364-day revolving credit facility”) and our commercial paper program, as discussed further in Note 7 to the Consolidated Financial Statements. As a result of the acquisition we recorded $4.1 billion of net assets including $2.5 billion of goodwill.

Immediately following the closing of the Advanced Disposal acquisition, the transactions contemplated by the U.S. Department of Justice in connection with our acquisition of Advanced Disposal (as subsequently amended, the “Divestiture Agreement”) were consummated. The required divestitures included a combination of assets and businesses belonging to us and Advanced Disposal. The Company subsequently received cash proceeds from the sale of $856 million, subject to certain post-closing adjustments. We recognized a net gain of $33 million on our net assets divested in this transaction, primarily within our Tier 2 segment. The impact on our results of operations from the divestitures was not material for the year ended December 31, 2020.

For the year ended December 31, 2020, we incurred $156 million of acquisition and integration related costs, which are primarily classified as “Selling, general and administrative expenses”. The post-closing operating results of Advanced Disposal have been included in our consolidated financial statements, within our existing reportable segments. Since the acquisition date, Advanced Disposal has recognized $205 million, $142 million and $60 million of revenue, operating expenses and selling, general and administrative expenses, respectively, which are included in our Consolidated Statement of Operations.

COVID-19 Update

In January 2020, a novel strain of coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern and was subsequently declared a global pandemic in March 2020. We have contingency plans in place to ensure continuity of operations at our collection sites, transfer stations, landfills and recycling facilities. These plans ensure that we are in compliance with federal, state, provincial and local guidelines. Key elements of our business continuity plan have been executed consistently across the organization. Our safety team has medical experts and industrial hygienists that are continuously monitoring and incorporating guidance from relevant authorities. To date our existing personal protective equipment, hygiene and operating procedures comply with guidelines established to protect our employees from additional risks associated with COVID-19.

COVID-19 began to impact our business in mid-March 2020, the results of which are described in detail under Results of Operations below. The challenges posed by the COVID-19 pandemic on the global economy increased rapidly at the end of the first quarter of 2020 and have continued through the date of this report, impacting our business in most geographies and across a variety of our customer types. Waste Management provides essential services to a diverse customer base and, as a result, many elements of our business are less exposed to variability. However, steps taken by national and local governments to slow the spread of the virus, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, stay-at-home orders and recommendations to practice social distancing resulted in revenue declines at our landfills, as well as decreased demand from our industrial and commercial collection customers. Additionally, within the residential line of business, the cost to service our customers increased as stay-at-home orders and continuing work-from-home trends increased the waste we collect. While we have seen improvement in our landfill and industrial and commercial collection volumes from the lowest levels observed in April 2020, uncertainty continues in the pace of business and economic recovery as national and local governments respond to guidance from relevant authorities in response to changes in COVID-19 statistics within local jurisdictions.

The Company has proactively taken steps to put our employees’ and customers’ needs first and we continue to work with the appropriate regulatory agencies to ensure we can provide our essential services safely and efficiently. These

efforts are, in some instances, reducing short-term revenues or increasing our costs, though they are sound decisions that reflect our focus on the long-term strength of our business. Examples of these efforts include:

Employees — We have prioritized the health, safety and financial security of our workforce. As local government bodies began to implement stay-at-home orders, and as business closures became more prevalent during the first half of 2020, key steps taken to benefit our workforce included (i) transitioning back-office employees to work-from-home; (ii) providing financial certainty to employees by temporarily guaranteeing all full-time hourly employees’ compensation for a 40 hour work week regardless of COVID-19 related service decreases; (iii) securing additional personal protective equipment to bolster the safety and security of our workplaces and (iv) guaranteeing elements of incentive compensation to certain employees to reflect our appreciation for their dedication and focus on executing well in the face of the pandemic. We continue to monitor COVID-19 and remain committed to keeping our employees safe by following federal and local laws and regulations.

Customers — Our top priority with respect to our customers has been ensuring that essential waste service needs continue to be safely met despite the unprecedented changes encountered in their communities. During the initial months of the pandemic, we worked with customers impacted by the COVID-19 pandemic to waive and suspend certain ancillary service charges, defer certain annual price increases, extend payment terms, adjust customer service levels and provide qualifying small and medium businesses with one month of free service upon re-opening. Beginning in July, with communities and governments re-opening, social distancing and safety measures being adopted, and signs of an improving economy, we resumed fees and price increases in accordance with our contractual terms and our average yield improved as expected.

The above steps, combined with our disciplined execution in our daily operations, have positioned the Company to prudently manage the challenges presented by the COVID-19 pandemic. The fundamentals of the Company continue to remain strong, and we have sufficient liquidity on hand to continue business operations during this volatile period.

We attribute the following notable impacts on our results of operations for the year ended December 31, 2020 to the COVID-19 pandemic:

Revenues — During the year ended December 31, 2020, we experienced a negative impact to revenue that we attribute to reductions in customers’ waste service needs as a result of COVID-19. While it is very difficult to measure, we believe that the COVID-19-related revenue loss was approximately $890 million. While the customer-centric steps discussed above have also contributed to this revenue decline, these impacts have been relatively immaterial to the overall revenue decline. As mentioned above, our volumes, particularly in our landfill and industrial and commercial collection lines of businesses, have improved from the lows experienced in April 2020, though the pace of volume recovery moderated during the fourth quarter of 2020 as local governments responded to recommendations from applicable authorities and changes in the COVID-19 statistics.

Operating Expenses — Volume-driven revenue declines and our strategic focus on proactive cost management led to a significant reduction in certain variable operating expenses. These reductions have been most significant in labor costs, where we have focused on developing an optimal work week that reduces overtime hours, and maintenance and repairs. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines and have negatively impacted our operating costs as a percentage of revenues. Additionally, our operating expenses have been impacted by employee pay guarantees and increases in container weights in our residential collection line of business, which increased our overall cost to serve these customers. Despite this, our proactive cost management efforts positioned us to hold our overall operating expenses as a percentage of revenues flat when compared with the prior year period.

Selling, General and Administrative Expenses — COVID-19 impacts on our customers and related customer receipts has led to an increase in the provision for bad debts for the year ended December 31, 2020. However, during the second half of 2020, we began to see an improvement in the provision for bad debts driven by successful collection efforts. Additionally, during 2020 we incurred costs associated with transitioning back-office employees to a work-from-home environment and costs related to employee pay guarantees.

The ultimate impacts of COVID-19 on our long-term outlook for the business will depend on future developments, including the duration of the pandemic and pace of economic recovery. These factors and their impacts on our business, financial condition, results of operations and cash flows are uncertain and cannot be predicted at this time. We remain focused on the diligent and safe execution of our daily operations. Additionally, we are focused on ensuring that we emerge from this pandemic a stronger, more differentiated company positioned as the service provider of choice for the long-term.

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 of waste at landfills. We monitor these developments to adapt our services 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.

Despite some industry consolidation in recent years, we encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, service quality, customer experience and breadth of service offerings. 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, including the impact of COVID-19, can and have caused customers to reduce their service needs. Such negative economic conditions, in addition to competitor actions, can and have made it more challenging to implement our pricing strategy and negotiate, renew or expand service contracts with acceptable margins. 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 in correlation to changes in revenue due to volume. Volume changes can fluctuate dramatically by line of business and decreases in volumes in higher margin businesses, such as what we have seen with COVID-19, can impact key financial metrics. In this type of environment, we must dynamically manage our cost structure.

Our financial results for the year ended December 31, 2020 reflect declines in our collection and disposal lines of business as a result of the negative impacts of COVID-19. These impacts began in March 2020 and continued through the date of this report, although we began to experience improvement in volumes during the second half of 2020 when compared to the more acute impacts we experienced earlier in the year. Given the ongoing pressures on the business from COVID-19, we continue to take proactive steps to reduce costs and maximize cash flow. These steps include (i) optimizing our route structure to respond proactively to lower industrial and commercial collection volumes; (ii) limiting hiring and optimizing the existing workforce through improved retention and reduced turnover and (iii) reducing or eliminating certain non-essential costs and expenses like travel and entertainment. Additionally, to enhance our liquidity, we are maintaining a disciplined focus on capital management by aligning additional investments with the revenue generation of the business, reducing capital spending on our landfill assets, and managing container capital in conjunction with our customers’ volumes. We also elected to temporarily suspend additional share repurchases in 2020 after the first quarter.

COVID-19 has also had impacts on the recycling line of business, including the creation of a short-term dislocation in the supply and demand dynamics for recycled commodities in the U.S. which increased market prices for certain commodities. Despite this increase in market prices, we continue to invest and seek opportunities for cost improvement as we remain steadfast in our commitment to improve the profitability and returns of the recycling line of business in any economic environment. We have maintained our focus on converting to a fee-based pricing model that addresses the cost of processing materials and the impact on our cost structure to manage contamination in the recycling stream.

We believe that the Company’s industry-leading asset network and strategic focuses on investing in people and our digital platform will give the Company the necessary tools to address the challenges presented by the COVID-19 pandemic and the impacts on our industry. In line with our commitment to continuous improvement and a differentiated customer experience, we continue to accelerate our customer service digitalization initiative to change the way we interact with our customers. Enhancements made through this initiative are designed to seamlessly and digitally connect all of the Company’s functions necessary to provide our customers the best experience and service.

Current Year Financial Results

During 2020, we delivered solid operating income and cash flows despite revenue declines in our collection and disposal lines of business due to the COVID-19 pandemic. We continue to take intentional steps to decrease our operating costs and eliminate discretionary selling, general and administrative expenses to mitigate the impact from the declines in our volumes. In addition to our focus on reducing certain costs, we took proactive steps to manage our capital spending. The Company continued its commitment to supporting both organic and inorganic growth during 2020, with the highlight being the completion of our acquisition of Advanced Disposal. In total, the Company allocated $1,632 million of available cash to capital expenditures and funded $4,088 million of acquisitions of solid waste businesses. We also allocated $1,329 million of available cash to our shareholders during 2020 through dividends and common stock repurchases.

Key elements of our 2020 financial results include:

	●	Revenues of $15,218 million for 2020 compared with $15,455 million in 2019, a decrease of $237 million, or 1.5%. The decline is primarily attributable to lower volumes in our collection and disposal businesses resulting from a reduction in customers’ waste service needs due to the COVID-19 pandemic, partially offset by (i) higher yield in our collection and disposal businesses; (ii) higher yield in our recycling business driven by higher commodity prices and (iii) acquisitions, net of divestitures, primarily due to the acquisition of Advanced Disposal;

	●	Operating expenses of $9,341 million in 2020, or 61.4% of revenues, compared with $9,496 million, or 61.4% of revenues, in 2019. The $155 million decrease is directly related to proactive steps taken to manage our variable costs in the lower volume environment. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines, which negatively impacted operating costs as a percentage of revenues. Despite this, our proactive cost management efforts positioned us to hold our overall operating expenses as a percentage of revenues flat, when compared with the prior year period;

	●	Selling, general and administrative expenses of $1,728 million in 2020, or 11.4% of revenues, compared with $1,631 million, or 10.6% of revenues, in 2019. This increase of $97 million is primarily attributable to (i) increased acquisition-related costs; (ii) higher costs associated with investments in our digital platform; and (iii) costs incurred as a result of the COVID-19 pandemic, including an increase in provision for bad debts. These cost increases were offset, in part, by (i) lower legal reserves; (ii) the proactive steps taken to reduce discretionary expenses and (iii) lower annual incentive compensation costs;

	●	Income from operations of $2,434 million, or 16.0% of revenues, in 2020 compared with $2,706 million, or 17.5% of revenues, in 2019. Management has taken steps to control our costs in a period of volume decline, significantly mitigating the negative impact to our income from operations. However, the year-over-year comparison has been affected by (i) an increase in integration costs associated with our acquisition of Advanced Disposal; (ii) non-cash impairment charges of $61 million; (iii) higher depreciation and amortization expense which was primarily related to investments in capital assets, including trucks and facilities and (iv) investments we are making in our digital platform. These negative impacts were partially offset by a net divestiture gain of $33 million associated with the sale of net assets to GFL Environmental in the fourth quarter;

	●	Net income attributable to Waste Management, Inc. was $1,496 million, or $3.52 per diluted share, compared with $1,670 million, or $3.91 per diluted share, in the prior year period. In addition to the activity discussed above, net income in the current period was also impacted by an increase in net interest expense due to debt incurred to acquire Advanced Disposal. Additionally, net income in the current period was favorably impacted by (i) a decrease in the cost of early extinguishment of debt; (ii) the unfavorable impact in 2019 of a $52 million impairment charge related to our minority-owned investment in a waste conversion technology business that was not deductible for tax purposes and (iii) lower income tax expense primarily attributable to lower income before income taxes;

	●	Net cash provided by operating activities was $3,403 million, compared with $3,874 million in the prior year period with the decline driven by (i) higher income tax payments related to the sale of assets to GFL Environmental; (ii) increased interest payments and integration related spending due to our acquisition of Advanced Disposal; (iii) payments associated with investments we are making in our digital platform and (iv) lower earnings on our traditional Solid Waste business primarily caused by the impact of the COVID-19

		pandemic. These results were partially offset by cash benefits in the current year associated with the 2019 federal alternative fuel credits and

	●	Free cash flow was $2,656 million compared with $2,105 million in the prior year period. The increase in free cash flow is primarily due to (i) higher proceeds from the sale of net assets to GFL Environmental and (ii) an intentional reduction in capital expenditures during the current year period to align with the lower volumes in our business. These positive impacts were partially offset by a decrease in net cash provided by operating activities noted above. Free cash flow is a non-GAAP measure of liquidity. Refer to Free Cash Flow within Liquidity and Capital Resources for our definition of free cash flow, additional information about our use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure.

Results of Operations

Operating Revenues

Our operating revenues set forth below are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations. We also provide additional services that are not managed through our Solid Waste business, including both our WMSBS and EES businesses, recycling brokerage services, landfill gas-to-energy services and certain other expanded service offerings and solutions. The mix of operating revenues from our major lines of business is reflected in the table below for the year ended December 31 (in millions):

​	​	​	​	​	​	​	​	​	​	​
​			2020			2019			2018
Commercial	​	​	$	4,102	​	$	4,229	​	$	3,972
Residential	​	​		2,716	​		2,613	​		2,529
Industrial	​	​		2,770	​		2,916	​		2,773
Other collection	​	​		465	​		482	​		450
Total collection	​	​		10,053	​		10,240	​		9,724
Landfill	​	​		3,667	​		3,846	​		3,560
Transfer	​	​		1,855	​		1,820	​		1,711
Recycling	​	​		1,127	​		1,040	​		1,293
Other (a)	​	​		1,776	​		1,758	​		1,736
Intercompany (b)	​	​		(3,260)	​		(3,249)	​		(3,110)
Total	​	​	$	15,218	​	$	15,455	​	$	14,914

(a)

The “Other” line of business includes (i) our WMSBS business; (ii) our landfill gas-to-energy operations; (iii) certain services within our EES business, including our construction and remediation services and our services associated with the disposal of fly ash and (iv) certain other expanded service offerings and solutions. In addition, our “Other” line of business reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity. We have reclassified collection, landfill, transfer and recycling activity within our “Other” line of business to the appropriate line of business for purposes of presentation in this table.

(b)	Intercompany revenues between lines of business are eliminated in the Consolidated Financial Statements included within this report.

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):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2020 vs. 2019											​	​	2019 vs. 2018
​	​	​	​	​	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	​	$	299	​	2.2	%	​	​	​	​	​	​	​	$	364	​	2.8	%	​	​	​	​	​	​
Recycling commodities (c)	​		75	​	7.6	​	​		​	​	​	​	​		(248)	​	(20.0)	​	​		​	​	​	​
Fuel surcharges and mandated fees	​		(151)	​	(24.7)	​	​		​	​	​	​	​		(22)	​	(3.5)	​	​		​	​	​	​
Total average yield (d)	​		​	​	​	​	​	$	223	​	1.5	%	​		​	​	​	​	​	$	94	​	0.6	%
Volume	​		​	​	​	​	​		(692)	​	(4.5)	​	​		​	​	​	​	​		346	​	2.3	​
Internal revenue growth	​	​	​	​	​	​	​	​	(469)	​	(3.0)	​	​	​	​	​	​	​	​	​	440	​	2.9	​
Acquisitions	​	​	​	​	​	​	​	​	248	​	1.7	​	​	​	​	​	​	​	​	​	222	​	1.5	​
Divestitures	​	​	​	​	​	​	​	​	(8)	​	(0.1)	​	​	​	​	​	​	​	​	​	(104)	​	(0.7)	​
Foreign currency translation and other	​	​	​	​	​	​	​	​	(8)	​	(0.1)	​	​	​	​	​	​	​	​	​	(17)	​	(0.1)	​
Total	​	​	​	​	​	​	​	$	(237)	​	(1.5)	%	​	​	​	​	​	​	​	$	541	​	3.6	%

(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 and changes in fees.

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

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.

The details of our revenue growth from collection and disposal average yield are as follows (dollars in millions):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​		2020 vs. 2019					2019 vs. 2018				​
​	​	​	​	​	​	As a % of		​	​	​	As a % of	​
​	​	​	​	​	​	Related		​	​	​	Related	​
​		​	Amount			Business		Amount			Business
Commercial	​	​	$	91	​	2.4	%	$	109	​	3.0	%
Industrial	​	​		74	​	2.7	​		103	​	4.0	​
Residential	​	​		73	​	2.9	​		81	​	3.3	​
Total collection	​	​		238	​	2.5	​		293	​	3.3	​
Landfill	​	​		32	​	1.3	​		44	​	2.0	​
Transfer	​	​		29	​	3.0	​		27	​	2.9	​
Total collection and disposal	​	​	$	299	​	2.2	%	$	364	​	2.8	%

​

Our overall strategic pricing efforts that are focused on improving our average unit rate have proven to be effective, despite the COVID-19 pandemic. During the second quarter of 2020, in order to support the continuity of our customers’

businesses, we made certain customer-centric pricing decisions, such as temporarily waiving and suspending certain ancillary service charges as well as delaying price increases in certain markets. These actions negatively impacted our year-to-date average yield. However, beginning in July 2020, we resumed fees and price increases in accordance with contractual terms and our average yield rebounded as expected.

Recycling Commodities — Increases in the market prices for recycling commodities resulted in revenue growth of $75 million for the year ended December 31, 2020 as compared with prior year. Decreases in the market prices for recycling commodities in 2019 resulted in a revenue decline of $248 million as compared to 2018. Average market prices for recycling commodities at the Company’s facilities were 19% higher in 2020 compared to 2019 and 35% lower in 2019 compared to 2018. We saw a market price increase in 2020 driven by a short-term dislocation in supply and demand dynamics for recycled materials, largely due to COVID-19 related decreases in the supply of recycled materials. While average market prices in 2020 were higher than 2019, we were at or below our overall historical average market price by the end of 2020. We continue to invest and seek opportunities for cost improvement as we remain steadfast in our commitment to improve the profitability and returns of the recycling line of business in any economic environment. We have maintained our focus on converting to a fee-based pricing model that addresses the cost of processing materials and the impact on our cost structure to manage contamination in the recycling stream.

_Fuel Surcharges and Mandated Fees —_These fees, which are predominantly generated by our fuel surcharge program, declined $151 million and $22 million for 2020 and 2019, respectively, as compared with the prior year periods. These revenues are based on, and fluctuate in response to changes in the national average prices for diesel fuel. Given the downturn in oil and gas markets, market prices for diesel fuel decreased approximately 16% and 4% for the years ended December 31, 2020 and 2019, respectively, compared with the prior year periods. Additionally, we transitioned certain customers’ pricing away from a fuel surcharge, reflecting the cost of fuel in the base rates we charge for our services, which further contributed to the year-over-year decline.

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) decreased $692 million, or 4.5%, and increased $346 million, or 2.3%, for the years ended December 31, 2020 and 2019, respectively, as compared with the prior year periods.

Beginning in March 2020, and continuing throughout the date of this report, our industrial and commercial collection and landfill businesses experienced significant volume declines as a result of the COVID-19 pandemic. While we have seen some improvement in our landfill and industrial and commercial collection volumes from the lowest levels observed in April 2020, our volumes continue to be meaningfully below prior year, particularly in special waste at the landfill, project-driven work in the industrial collection business and certain commercial and collection customer segments. Uncertainty continues with respect to the pace of business and economic recovery as local governments continue to respond to recommendations from applicable authorities and changes in the COVID-19 statistics. Additionally, while natural disaster clean-up efforts benefited our 2019 volumes, they were inconsequential to our results for the year ended December 31, 2020. The preceding decreases in volume-related revenues have been partially offset by volume increases in our WM Renewable Energy business which grew in 2020 as a result of a new renewable energy facility coming online, and our continued focus on a differentiated service model for national accounts customers.

We experienced higher volumes throughout 2019 when compared to 2018 due to our focus on customer service and disciplined growth, combined with favorable market conditions in our collection and disposal business. We experienced significant volume growth with existing customers, particularly in our commercial collection business as a result of proactive efforts taken to work with our customers as their needs expanded to identify service upgrade opportunities. Our event-driven projects in our special waste business and growth in our municipal solid waste business contributed to our landfill volume growth in 2019. Furthermore, our WMSBS business experienced favorable volume growth in 2019. The

clean-up efforts of natural disasters primarily in California during the first half of 2019 contributed to volume growth in 2019, partially offset by volume decline from our recycling brokerage services in 2019.

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 line of business, including certain rebates paid to suppliers; (vi) fuel costs, net of tax credits for alternative fuel, which represent the costs of fuel and oil to operate our truck fleet and landfill operating equipment; (vii) disposal and franchise fees and taxes, which include landfill taxes, municipal franchise fees, host community fees, contingent landfill lease payments and royalties; (viii) landfill operating costs, which include interest accretion on landfill liabilities, interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets, leachate and methane collection and treatment, landfill remediation costs and other landfill site costs; (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):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		2020				​		2019				​		2018				​
Labor and related benefits	​	$	2,746		18.1	%	​	$	2,791		18.0	%	​	$	2,703		18.1	%
Transfer and disposal costs	​		1,135	​	7.5	​	​		1,160	​	7.5	​	​		1,105	​	7.4	​
Maintenance and repairs	​		1,331	​	8.7	​	​		1,355	​	8.8	​	​		1,255	​	8.4	​
Subcontractor costs	​		1,523	​	10.0	​	​		1,532	​	9.9	​	​		1,375	​	9.2	​
Cost of goods sold	​		553	​	3.6	​	​		553	​	3.6	​	​		783	​	5.3	​
Fuel	​		265	​	1.7	​	​		336	​	2.2	​	​		409	​	2.7	​
Disposal and franchise fees and taxes	​		606	​	4.0	​	​		627	​	4.1	​	​		598	​	4.0	​
Landfill operating costs	​		394	​	2.6	​	​		379	​	2.4	​	​		331	​	2.2	​
Risk management	​		269	​	1.8	​	​		267	​	1.7	​	​		235	​	1.6	​
Other	​		519	​	3.4	​	​		496	​	3.2	​	​		455	​	3.1	​
​	​	$	9,341	​	61.4	%	​	$	9,496	​	61.4	%	​	$	9,249	​	62.0	%

​

As discussed above in Operating Revenues, year-over-year decreases in our landfill and industrial and commercial collection volumes, primarily due to the impacts of COVID-19, have significantly impacted the year ended December 31, 2020. The declines in most operating expense categories during the reported periods are directly related to proactive steps taken to manage our variable costs in the lower volume environment. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines and have negatively impacted operating costs as a percentage of revenues. In addition, our operating expenses as a percentage of revenues was impacted by our acquisition of Advanced Disposal as the acquired business’s operating cost structure is higher than ours, because we are early in our integration and synergy realization processes and we have incurred certain one-time, upfront costs

needed to support integration. Despite this, our proactive cost management efforts positioned us to hold our overall operating expenses as a percentage of revenues flat when compared with the prior year periods.

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

Labor and Related Benefits — The decrease in labor and related benefits costs in 2020 as compared with 2019 was largely driven by decreases in volume in our industrial and commercial collection businesses. Our proactive steps positioned us to optimize our route structure to respond to lower industrial and commercial collection volumes. Additionally, the decrease was attributable to (i) improved efficiency; (ii) lower headcount due to employee attrition coupled with proactive steps to defer hiring due to COVID-19 driven uncertainty and (iii) lower annual incentive compensation. These decreases were offset, in part, by annual merit increases and the addition of employees as a result of our acquisition of Advanced Disposal. The increase in labor and related benefits costs in 2019 as compared with 2018 was driven by (i) volume growth in our collection and disposal business; (ii) merit increases and (iii) cost inflation. These cost increases were offset, in part, by lower bonus costs related to a one-time plan established in early 2018 targeted at improving employee retention.

Transfer and Disposal Costs — The decrease in transfer and disposal costs in 2020 as compared with 2019 was largely driven by volume declines in our industrial and commercial collection businesses as a result of COVID-19 offset, in part, by additional disposal costs attributable to our acquisition of Advanced Disposal. The increase in transfer and disposal costs in 2019 as compared with 2018, was driven by overall volume growth in our collection and disposal business and, to a lesser extent, cost inflation.

Maintenance and Repairs — The decrease in maintenance and repairs costs in 2020 as compared with 2019 was largely driven by proactive steps to optimize routes and reduce overtime hours to address the volume declines discussed above. This decline in costs was partially offset by additional costs incurred to make investments in the fleet acquired as part of the Advanced Disposal acquisition. Additionally, there has been an increasing trend in our maintenance and repairs costs during the reported periods due to (i) inflationary cost pressures for both Company and third-party services due to demand for skilled technician labor as well as for parts and supplies; (ii) higher per unit costs required for an increasingly automated fleet in the residential line of business and (iii) our focus on making upgrades to our operating facilities. The comparisons are also impacted by a $16 million non-cash charge to write off certain equipment costs related to our Other segment recognized in 2019.

Subcontractor Costs — The decrease in subcontractor costs in 2020 as compared to 2019 was largely driven by COVID-19 related volume declines in our industrial collection business and projects ending or scaling down during 2020 in our EES business. The decrease was offset, in part, by an increase in business activity in our WMSBS business which relies more extensively on subcontracted hauling than our collection and disposal business. The increase in subcontractor costs in 2019 as compared to 2018 was primarily driven by (i) volume growth in our collection and disposal business, largely attributable to a significant contract executed in the second half of 2017 that generated incremental volumes in 2019; (ii) volume growth in our WMSBS and EES businesses and (iii) cost inflation related to capacity constraints of our subcontractors in certain markets.

Cost of Goods Sold — Costs in 2020 were flat when compared to 2019 in spite of an increase in commodity prices, largely due to lower recycling volumes as a result of COVID-19. Additionally, a higher percentage of our overall recycled commodity sales were targeted at domestic markets, resulting in lower freight costs. The decrease in cost of goods sold in 2019 as compared with 2018 was primarily driven by lower market prices for recycling commodities and by lower costs due to the sale of certain ancillary operations in the second quarter of 2018.

Fuel — The decrease in fuel costs in 2020 as compared with 2019 was primarily due to (i) a decline in market prices for diesel fuel; (ii) lower costs resulting from the continued conversion of our fleet to natural gas vehicles and (iii) volume declines. The decreases were offset, in part, by (i) lower federal alternative fuel credits and (ii) additional costs attributable to our acquisition of Advanced Disposal. The decrease in fuel costs in 2019 as compared with 2018 was due to (i) the recognition of two years of federal alternative fuel credits in 2019 compared to a single year of credits in 2018 due to the

timing of government action providing for the benefits attributable to each period; (ii) lower costs resulting from the continued conversion of our fleet to natural gas vehicles and (iii) lower market prices for diesel fuel.

Disposal and Franchise Fees and Taxes — The decrease in disposal and franchise fees and taxes in 2020 as compared to 2019 was primarily related to lower volumes in our landfill line of business, largely driven by the impact of COVID-19. The decreases were offset, in part, by additional costs attributable to our acquisition of Advanced Disposal. The increase in disposal and franchise fees and taxes in 2019 as compared with 2018 was primarily related to higher volumes in our landfill line of business.

Landfill Operating Costs — The increase in landfill operating costs in 2020 as compared with 2019 was primarily due to higher leachate management costs compared to the prior year and additional costs attributable to our acquisition of Advanced Disposal. This increase was offset, in part, by decreases attributable to lower volumes at our landfills. The increase in landfill operating costs in 2019 as compared with 2018 was primarily due to higher leachate management costs driven largely by inclement weather in certain parts of North America and increased ongoing site maintenance costs. Additionally, 2020 and 2019 were impacted by decreases in the risk-free discount rate used in the measurement of our environmental remediation obligations and recovery assets due to decreases in U.S. treasury rates. See Note 4 to the Consolidated Financial Statements for additional information.

Risk Management — Risk management costs were relatively flat in 2020 as compared with 2019. The increase in risk management costs in 2019 as compared with 2018 was primarily due to an increase in claims expense as a result of growth in the business and cost inflation.

Other — Net gains on sales of certain assets during each year 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):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		2020				​		2019				​		2018				​
Labor and related benefits	​	$	1,057		6.9	%	​	$	1,020		6.6	%	​	$	957		6.4	%
Professional fees	​		256	​	1.7	​	​		183	​	1.2	​	​		113	​	0.8	​
Provision for bad debts	​		54	​	0.4	​	​		38	​	0.3	​	​		53	​	0.3	​
Other	​		361	​	2.4	​	​		390	​	2.5	​	​		330	​	2.2	​
​	​	$	1,728	​	11.4	%	​	$	1,631	​	10.6	%	​	$	1,453	​	9.7	%

​

Selling, general and administrative expenses for the year ended December 31, 2020 have increased due to (i) incremental costs of approximately $150 million incurred in connection with the acquisition and integration of Advanced Disposal; (ii) strategic investments in our digital platform, including planned investments in a new enterprise resource planning system and accelerated investments in customer service digitalization and (iii) an increase in the provision for bad debts due to negative impacts on customer receipts experienced as a result of the COVID-19 pandemic. In addition to the cost increases, selling, general and administrative expenses as a percent of revenue have increased in 2020 due to the decline in volume-related revenues.

​

We consistently manage our costs, particularly those incurred for discretionary initiatives, to ensure that we are optimizing our customer service, back-office effectiveness and profitability. As a result of the declines in revenue from the COVID-19 pandemic, we specifically focused on reducing costs for advertising, travel and entertainment and professional fees other than those specifically tied to strategic initiatives. The decreases in selling, general and administrative expenses from these proactive steps have been more than offset by the items discussed above.

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 2020 compared with 2019 was largely due to (i) costs incurred in connection with our acquisition of Advanced Disposal including severance costs and additional headcount; (ii) annual merit increases and (iii) costs associated with the strategic investments in our digital platform. These cost increases were offset, in part, by (i) lower annual incentive compensation and (ii) proactive steps undertaken to defer hiring and reduce labor related costs. The increase in labor and related benefits costs in 2019 compared with 2018 was primarily due to (i) an increase in headcount, merit increases and higher incentive compensation and (ii) increased contract labor costs driven by planned investments in our digital platform.

Professional Fees — The increases in professional fees over the reported periods were primarily driven by consulting fees incurred in connection with the acquisition and integration of Advanced Disposal and strategic investments in our digital platform.

Provision for Bad Debts — The increase in the provision for bad debts in 2020 compared with 2019 was primarily due to increased collection risk associated with certain customers as a result of the COVID-19 pandemic. However, we were encouraged to see an overall improvement in customer account collections during the second half of 2020 when compared to the first half of the year. The decrease in provision for bad debts in 2019 compared with 2018 was due to the collection of certain fully reserved receivables and higher prior year bad debt expense associated with the bankruptcy of a strategic customer.

Other — The decrease in other expenses in 2020 compared with 2019 was primarily due to lower litigation costs and proactive measures taken to reduce discretionary costs, such as travel and entertainment, company-wide. These cost decreases were offset, in part, by increased technology infrastructure costs in 2020, which we expect to continue as we make strategic investments in our digital platform. We also incurred one-time technology costs in the first half of 2020 to transition employees to work-from-home in response to the COVID-19 pandemic. The increase in other expenses in 2019 compared with 2018 was principally driven by higher litigation reserves and increased infrastructure costs associated with investments in our digital platform.

Depreciation and Amortization Expenses

The following table summarizes the components of our depreciation and amortization expenses for the year ended December 31 (dollars in millions and as a percentage of revenues):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		2020				​		2019				​		2018
Depreciation of tangible property and equipment	​	$	996		6.6	%	​	$	893		5.8	%	​	$	838		5.6	%
Amortization of landfill airspace	​		568	​	3.7	​	​		575	​	3.7	​	​		538	​	3.6	​
Amortization of intangible assets	​		107	​	0.7	​	​		106	​	0.7	​	​		101	​	0.7	​
​	​	$	1,671	​	11.0	%	​	$	1,574	​	10.2	%	​	$	1,477	​	9.9	%

​

The increase in depreciation of tangible property and equipment in 2020, compared with 2019, was primarily related to (i) investments in capital assets, including trucks and facilities and (ii) additional depreciation attributable to our acquisition of Advanced Disposal. The decrease in amortization of landfill airspace in 2020 compared with 2019 was driven by (i) lower volumes at our landfills, primarily as a result of the COVID-19 pandemic and (ii) a decrease in the inflation rate used to estimate capping, closure and post-closure asset retirement obligations from 2.5% to 2.25% at

December 31, 2020. These decreases were offset, in part, by charges to reflect changes in estimated landfill construction costs and our acquisition of Advanced Disposal.

Our amortization of intangible assets was flat in 2020, compared with 2019. The increased expense for intangible assets acquired as part of the acquisition of Advanced Disposal was offset, primarily by decreases for certain customer list assets reaching the end of their lives.

The increase in depreciation of tangible property and equipment in 2019 compared with 2018 was primarily related to higher capital expenditures due to an intentional focus on accelerating certain fleet and landfill spending to support the Company’s strong collection and disposal growth. The increase in amortization of landfill airspace in 2019 compared with 2018 was driven by higher volumes at our landfills and changes in landfill estimates.

Restructuring

During the year ended December 31, 2020, we recognized $9 million of restructuring charges primarily related to modifying our field sales and customer services structures to better support our investment in customer service digitalization, which is discussed above.

(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):

​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018
Gain from divestitures, net	​	$	(33)	​	$	—	​	$	(96)
Asset impairments	​		68	​		42	​		38
​	​	$	35	​	$	42	​	$	(58)

​

During the year ended December 31, 2020, we recognized $35 million of net charges primarily related to the following:

Gain from Divestitures, Net — As discussed further in Note 18 to the Consolidated Financial Statements, we and Advanced Disposal entered into an agreement that provided for GFL Environmental to acquire a combination of assets from us and Advanced Disposal to address divestitures required by the U.S. Department of Justice. Immediately following the closing of the Advanced Disposal acquisition on October 30, 2020, the transactions contemplated by the Divestiture Agreement were consummated and the Company subsequently received cash proceeds from the sale of $856 million. We recognized a net gain of $33 million on our net assets divested, primarily within our Tier 2 segment.

Energy Services Asset Impairments — During the second quarter of 2020, the Company tested the recoverability of certain energy services assets in our Tier 1 segment. Indicators of impairment included (i) the sharp downturn in oil demand that has led to a significant decline in oil prices and production activities, which we project will have long-term impacts on the utilization of our assets and (ii) significant shifts in our business, including increases in competition and customers choosing to bury waste on site versus in a landfill, reducing our revenue outlook. The Company determined that the carrying amount of the asset group was not fully recoverable. As a result, we recognized $41 million of non-cash impairment charges primarily related to two landfills and an oil field waste injection facility in our Tier 1 segment. We wrote down the net book value of these assets to their estimated fair value using an income approach based on estimated future cash flow projections (Level 3). The aggregate fair value of the impaired asset group was $8 million as of June 30, 2020. The Company tested the recoverability of an additional $239 million in energy services assets and determined that the carrying amount was recoverable as of June 30, 2020. No new indicators of impairment were identified during the second half of 2020.

Other Impairments —We recognized a $20 million non-cash impairment charge in our Tier 3 segment due to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted

airspace, which was considered an impairment indicator. We determined the carrying value was not recoverable, and we wrote off the entire net book value of the asset using an income approach based on estimated future cash flow projections (Level 3). The impairment charge was comprised of $12 million related to the carrying value of the asset and $8 million related to the acceleration of the expected timing of capping, closure and post-closure activities, which is discussed further in Note 4 to the Consolidated Financial Statements.

Additionally, we recognized $7 million of net charges primarily related to non-cash impairments of certain assets within our WM Renewable Energy business in our Other segment. We determined the carrying values of the assets were not recoverable, and we wrote off their entire net carrying value using an income approach based on estimated future cash flow projections (Level 3).

During the year ended December 31, 2019, we recognized asset impairments of $42 million, related to (i) $27 million of goodwill impairment charges, of which $17 million related to our EES business, and $10 million related to our LampTracker® reporting unit and (ii) $15 million of asset impairment charges primarily related to certain solid waste operations.

During the year ended December 31, 2018, we recognized net gains of $58 million, primarily related to (i) a $52 million gain associated with the sale of certain collection and disposal operations in Tier 1 and (ii) net gains of $44 million substantially all from divestitures of certain ancillary operations. These gains were partially offset by (i) a $30 million charge to impair a landfill in Tier 3 based on an internally developed discounted projected cash flow analysis, taking into account continued volume decreases and revised capping cost estimates and (ii) $8 million of impairment charges primarily related to our LampTracker® reporting unit.

See Note 3 to the Consolidated Financial Statements for additional information related to the accounting policy and analysis involved in identifying and calculating impairments.

Income from Operations

The following table summarizes income from operations for the year ended December 31 and has been updated to reflect our realigned segments which are discussed further in Note 20 to the Consolidated Financial Statements (dollars in millions):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	Period-to-					​	​	​	Period-to-				​	​	​	​
​	​	​	​	​	Period					​	​	​	Period				​	​	​	​
​		2020			Change					2019(c)			Change					2018(c)		​
Solid Waste:		​			​				​	​			​				​	​	​
Tier 1	​	$	1,575	​	$	(144)		(8.4)	%	$	1,719	​	$	64		3.9	%	$	1,655	​
Tier 2	​		849	​		(32)		(3.6)	​		881	​		69		8.5	​		812	​
Tier 3	​		1,071	​		(102)		(8.7)	​		1,173	​		145		14.1	​		1,028	​
Solid Waste	​		3,495	​		(278)		(7.4)	​		3,773	​		278		8.0	​		3,495	​
Other (a)	​		(38)	​		123		*	​		(161)	​		(132)		*	​		(29)	​
Corporate and Other (b)	​	​	(1,023)	​	​	(117)	​	12.9	​	​	(906)	​	​	(229)	​	33.8	​	​	(677)	​
Total	​	$	2,434	​	$	(272)		(10.1)	%	$	2,706	​	$	(83)		(3.0)	%	$	2,789	​
Percentage of revenues	​	​	16.0	%	​	​		​	​	​	17.5	%	​	​		​	​	​	18.7	%

• Percentage change does not provide a meaningful comparison.

(a)

“Other” includes (i) our WMSBS business; (ii) those elements of our landfill gas-to-energy operations and third-party subcontract and administration revenues managed by our EES and WM Renewable Energy businesses that are not included in the operations of our reportable segments; (iii) our recycling brokerage services and (iv) certain other expanded service offerings and solutions. In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

(b)	Corporate operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments. These support services include, among other things, treasury, legal, digital, tax, insurance,

	centralized service center processes, other administrative functions and the maintenance of our closed landfills. Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive program and any administrative expenses or revisions to our estimated obligations associated with divested operations.

(c)	In 2020, we revised allocations between our segments including (i) the discontinuation of certain allocations from Corporate and Other to Solid Waste and (ii) allocating certain insurance costs from Other to Solid Waste. Reclassifications have been made to our prior period information for comparability purposes.

Solid Waste — The most significant items affecting the results of operations of our Solid Waste business during the three years ended December 31, 2020 are summarized below:

The following items affected 2020 when compared to 2019:

	●	Income from operations for 2020 decreased on a year-over-year basis for all Tiers due to the overall negative impact of the COVID-19 pandemic resulting in revenue declines from lower volumes and higher depreciation and amortization expense which was primarily related to investments in capital assets, including trucks and facilities. The declines were partially offset by (i) higher yield in our collection and disposal businesses; (ii) the benefit of resumed fees and price increases; (iii) lower operating costs directly related to our proactive steps taken to manage our variable costs in the lower volume environment and (iv) a net divestiture gain of $33 million associated with the sale of net assets to GFL Environmental, primarily within our Tier 2 segment.

	●	Additionally, income from operations for our Tier 1 segment was impacted by $41 million of non-cash asset impairment charges primarily related to two landfills and an oil field waste injection facility. Income from operations for our Tier 3 segment was impacted by a $20 million non-cash impairment charge related to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace. Furthermore, in 2019, our Tier 2 segment benefited from the clean-up efforts of natural disasters primarily in California and similar efforts did not recur in 2020.

The following items affected 2019 when compared to 2018:

	●	Income from operations for our collection and disposal business experienced strong operating results, primarily driven by (i) internal revenue growth; (ii) acquisitions and divestitures and (iii) decreased fuel costs due in part to a year-over-year increase in federal natural gas fuel credits.

However, the following items negatively impacted our results from operations and resulted in lower income from operations in 2019 when compared with 2018:

	●	(i) higher operating costs, driven by increased volumes, higher depreciation related to new collection fleet and higher labor, maintenance and repair costs; (ii) lower recycling commodity prices and (iii) asset impairments.

Other — Income from operations for the Other segment for the year ended December 31, 2020 compared with 2019 was favorably impacted primarily by (i) an increase in revenue in our WM Renewable Energy business as a result of a new renewable energy facility coming online which drove an increase in commodity sales; (ii) an increase in revenue for our WMSBS business as a result of newly executed national account contracts and (iii) an increase in revenue in our recycling brokerage business.

In 2019 compared with 2018, lower income from operations is a result of (i) net gains from divestitures of certain ancillary operations in the prior year period of $44 million; (ii) $27 million of goodwill impairment charges, of which $17 million related to our EES business and $10 million related to our LampTracker® reporting unit; (iii) lower commodity

prices in 2019 associated with our WM Renewable Energy business; (iv) a $16 million non-cash charge to write off certain equipment costs in 2019 and (v) an increase in claims expense as a result of growth in the business and cost inflation.

Corporate and Other — The most significant items affecting the results of operations for Corporate and Other during the three years ended December 31, 2020 are summarized below:

The following items affected 2020 when compared with 2019:

	●	The decrease in income from operations was driven by increased expenses as a result of (i) our acquisition and integration of Advanced Disposal; (ii) investments we are making in our digital platform; (iii) incremental costs associated with COVID-19 pandemic and (iv) higher long-term incentive compensation costs. These increased expenses were offset, in part, by (i) lower annual incentive compensation and (ii) lower litigation reserves.

The following items affected 2019 when compared with 2018:

	●	The decrease in income from operations was driven by increased expenses as a result of (i) higher consulting fees, largely due to the investments we are making in our people and digital platform; (ii) higher litigation reserves; (iii) preparation for our acquisition of Advanced Disposal and (iv) a decrease in the risk-free discount rate used in the measurement of our environmental remediation obligations and recovery assets in 2019. Additionally, we recognized higher incentive compensation costs during 2019.

Interest Expense, Net

Our interest expense, net was $425 million, $411 million and $374 million in 2020, 2019 and 2018, respectively. The increase in interest expense, net for 2020 was primarily attributable to decreases in interest income resulting from lower cash and cash equivalents balances, due to the redemption of $3.0 billion of senior notes with a special mandatory redemption feature (the “SMR Notes”) in July 2020 as discussed below in Loss on Early Extinguishment of Debt, Net. Partially offsetting the decreases in interest income were favorable impacts due to a lower interest rate on our commercial paper borrowings as a result of the favorable interest rate environment in 2020 compared to 2019. The increase in 2019 compared with 2018 is primarily attributable to our May 2019 issuance of $4.0 billion senior notes, partially offset by related increases in interest income as a result of higher cash and cash equivalents balances.

Loss on Early Extinguishment of Debt, Net

In May 2019, WM issued $4.0 billion of senior notes, including $3.0 billion of SMR Notes. We used $344 million of the proceeds from this offering to retire $257 million principal amount of certain high-coupon senior notes. The cash paid to retire the high-coupon senior notes also included $84 million of related premiums, which are classified as loss on early extinguishment of debt in our Consolidated Statement of Operations, and $3 million of accrued interest.

In the third quarter of 2019, we elected to refund and reissue $99 million of tax-exempt bonds, which resulted in the recognition of a $1 million loss on early extinguishment of debt in our Consolidated Statement of Operations.

In July 2020, we recognized a $52 million loss on early extinguishment of debt in our Consolidated Statement of Operations related to the mandatory redemption of the SMR Notes. The loss includes $30 million of premiums paid and $22 million of unamortized discounts and debt issuance costs. Pursuant to the terms of the SMR Notes, we were required to redeem all of such outstanding notes paying debt holders 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest, as a result of the Advanced Disposal acquisition not being completed by July 14, 2020. Accordingly, the redemption was completed on July 20, 2020 using available cash on hand and, to a lesser extent,

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

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

At the time of acquisition, Advanced Disposal had outstanding $425 million of 5.625% senior notes due November 2024. In November 2020, we redeemed the notes pursuant to an optional redemption feature upon which we recognized a $1 million gain on early extinguishment of debt in our Consolidated Statement of Operations due to the difference in carrying value and redemption price.

​

See Note 7 to the Consolidated Financial Statements for more information related to the debt transactions.

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of $68 million, $55 million and $41 million in 2020, 2019 and 2018, respectively. The losses for each period are primarily related to our noncontrolling interests in entities established to invest in and manage low-income housing properties. We generate tax benefits, including tax credits, from the losses incurred from these investments, which are discussed further in Note 9 to the Consolidated Financial Statements. Additionally, the 2019 periods include losses associated with our investment in a refined coal facility. In 2020, the entity that holds and manages our ownership interest in the refined coal facility sold a majority of its assets resulting in a $7 million non-cash impairment charge at that time.

Other, Net

We recognized other, net income of $5 million and $2 million in 2020 and 2018, respectively, compared to other, net expense of $50 million in 2019. In 2019, we recognized a $52 million non-cash impairment charge related to our minority-owned investment in a waste conversion technology business. We wrote down our investment to its estimated fair value as the result of recent third-party investor’s transactions in these securities. The fair value of our investment was not readily determinable; thus, we determined the fair value utilizing a combination of quoted price inputs for the equity in our investment (Level 2) and certain management assumptions pertaining to investment value (Level 3).

Income Tax Expense

We recorded income tax expense of $397 million, $434 million and $453 million in 2020, 2019 and 2018 respectively, resulting in effective income tax rates of 20.9%, 20.6% and 19.0% for the years ended December 31, 2020, 2019 and 2018, 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 and refined coal facility investments reduced our income tax expense by $87 million, $96 million and $57 million, primarily due to tax credits realized from these investments for the years ended December 31, 2020, 2019 and 2018, respectively. See Note 19 for additional information related to these unconsolidated variable interest entities;

	●	Other Federal Tax Credits — During 2020, 2019 and 2018, we recognized federal tax credits in addition to the tax credits realized from our investments in low-income housing properties and the refined coal facility, resulting in a reduction in our income tax expense of $7 million, $11 million and $10 million, respectively;

	●	Non-Deductible Transaction Costs — During 2020 and 2019, we recognized the detrimental tax impact of $27 million and $10 million, respectively, of non-deductible transaction costs related to our acquisition of Advanced Disposal. The tax rules require the capitalization of certain facilitative costs on the acquisition of stock of a company resulting in the applicable costs not being deductible for tax purposes;

	●	Tax Implications of Impairments — Portions of the impairment charges recognized during 2019 and 2018 were not deductible for tax purposes resulting in an increase in income tax expense of $15 million and $1 million, respectively. The non-cash impairment charges recognized during 2020 are deductible for tax purposes. See Note 12 for more information related to our impairment charges;

	●	Equity-Based Compensation — During 2020, 2019 and 2018, we recognized excess tax benefits related to the vesting or exercise of equity-based compensation awards resulting in a reduction in our income tax expense of $27 million, $25 million and $17 million, respectively;

	●	State Net Operating Losses and Credits — During 2020, 2019 and 2018, we recognized state net operating losses and credits resulting in a reduction in our income tax expense of $12 million, $14 million and $22 million, respectively;

	●	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 $10 million, $2 million and $40 million for the years ended December 31, 2020, 2019 and 2018, respectively;

	●	Adjustments to Accruals and Deferred Taxes — Adjustments to our accruals and deferred taxes due to the filing of our income tax returns, analysis of our deferred tax balances and changes in state and foreign laws resulted in a reduction in our income tax expense of $3 million, $22 million and $52 million for the years ended December 31, 2020, 2019 and 2018, respectively; and

	●	Enactment of Tax Reform — In accordance with applicable accounting guidance, the Company recognized the provisional tax impacts and subsequent measurement period adjustments related to the remeasurement of our deferred income tax assets and liabilities and the one-time, mandatory transition tax on deemed repatriation of previously tax-deferred and unremitted foreign earnings, resulting in a reduction in our income tax expense of $12 million for the year ended December 31, 2018.

See Note 9 to the Consolidated Financial Statements for more information related to income taxes.

Landfill and Environmental Remediation Discussion and Analysis

We owned or operated 263 solid waste landfills and five secure hazardous waste landfills as of December 31, 2020 and 244 solid waste landfills and five secure hazardous waste landfills as of December 31, 2019. 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):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2020					​	2019
​	​	Remaining	​	​	​	​	​	Remaining	​	​	​	​
​	​	Permitted	​	Expansion	​	Total	​	Permitted	​	Expansion	​	Total
​	​	Capacity	​	Capacity	​	Capacity	​	Capacity	​	Capacity	​	Capacity
Balance as of beginning of year (in tons)	​	4,754	​	200	​	4,954	​	4,762	​	220	​	4,982
Acquisitions, divestitures, newly permitted landfills and closures		259		14		273		27		—		27
Changes in expansions pursued (a)		—		21		21		—		36		36
Expansion permits granted (b)		44		(44)		—		57		(57)		—
Amortizable tons received		(112)		—		(112)		(121)		—		(121)
Changes in engineering estimates and other (c)		(54)		—		(54)		29		1		30
Balance as of end of year (in tons)		4,891		191		5,082		4,754		200		4,954
Balance as of end of year (in cubic yards)		4,828		163		4,991		4,694		166		4,860

(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 four of our landfills during 2020 and seven of our landfills during 2019, 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.

The tons received at our landfills for the year ended December 31 are shown below (tons in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	2020					​	2019
​		# of		Total		Tons per		# of		Total		Tons per
​		Sites		Tons(a)		Day		Sites		Tons		Day
Solid waste landfills		263	(b)	112,729		413		244		120,556		443
Hazardous waste landfills		5		676		2		5		703		3
​		268		113,405		415		249		121,259		446
Solid waste landfills closed, divested or lease or other contractual agreement expired during related year		5		318				8		692
​				113,723	(c)					121,951	(c)

(a)	Includes approximately 1.2 million tons attributable to Advanced Disposal.

(b)	In 2020, we (i) acquired 24 landfills upon our acquisition of Advanced Disposal; (ii) divested two landfills; (iii) closed one landfill and (iv) closed two landfills operated under lease agreements. These landfill acquisition and divestiture totals do not include 16 landfills acquired through our acquisition of Advanced Disposal which were immediately sold pursuant to the Divestiture Agreement.

(c)

These amounts include 1.7 million tons and 1.3 million tons as of December 31, 2020 and 2019, respectively, that were received at our landfills but were not amortized as they were used for beneficial purposes and generally were redirected from the permitted airspace to other areas of the landfill. Waste types that are frequently identified for beneficial use include green waste for composting and clean dirt for on-site construction projects.

When a landfill we own or operate receives certification of closure from the applicable regulatory agency, we generally transfer the management of the site, including any remediation activities, to our environmental legacy management group. As of December 31, 2020, our environmental legacy management group managed 221 closed landfills, including eight closed landfills acquired from Advanced Disposal.

Based on remaining permitted airspace as of December 31, 2020 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 15 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 40 years when considering remaining permitted airspace, expansion airspace and projected annual disposal volume.

The number of landfills owned or operated as of December 31, 2020, 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		26	​
6 to 10 years		23	​
11 to 20 years		45	​
21 to 40 years		63	​
41+ years		111	​
Total		268	(a)

(a)	Of the 268 landfills, 226 are owned, 30 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.

As of December 31, 2020, we have 17 landfills which are not currently accepting waste. During the year ended December 31, 2020, we performed tests of recoverability for five of these landfills with an aggregate net recorded capitalized landfill asset cost of $304 million, for which the undiscounted expected future cash flows resulting from our probability-weighted estimation approach exceeded the carrying values. We did not perform recoverability tests for the remaining 12 landfills as the net recorded capitalized landfill asset cost was not material.

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 amortization for the year ended December 31, 2020 are reflected in the table below (in millions):

​	​	​	​	​	​	​	​	​	​
​		​	​		Accumulated			​	Net Book
​	​	Cost Basis of		​	Landfill Airspace		​	​	Value of
​		Landfill Assets			Amortization			Landfill Assets
December 31, 2019	​	$	15,910	​	$	(9,326)	​	$	6,584
Capital additions	​		546	​		—	​		546
Asset retirement obligations incurred and capitalized	​		83	​		—	​		83
Acquisitions	​		607	​		—	​		607
Amortization of landfill airspace	​		—	​		(568)	​		(568)
Foreign currency translation	​		22	​		(10)	​		12
Asset retirements and other adjustments	​		(326)	​		212	​		(114)
December 31, 2020	​	$	16,842	​	$	(9,692)	​	$	7,150

​

As of December 31, 2020, we estimate that we will spend approximately $664 million in 2021, and approximately $1.3 billion in 2022 and 2023 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.

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 3 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 estimated cost for the likely remedy can be reasonably estimated.

The changes to landfill and environmental remediation liabilities for the year ended December 31, 2020 are reflected in the table below (in millions):

​	​	​	​	​	​	​
​	​	​	​	​	Environmental
​		Landfill			Remediation
December 31, 2019	​	$	1,855	​	$	240
Obligations incurred and capitalized	​		83			—
Obligations settled	​		(103)			(23)
Interest accretion	​		103			2
Revisions in estimates and interest rate assumptions (a) (b)	​		(27)			11
Acquisitions, divestitures and other adjustments (c)	​		245			—
December 31, 2020	​	$	2,156	​	$	230

(a)

The amount reported for our landfill liabilities includes a reduction of $104 million related to the change in inflation rate from 2.5% to 2.25% as of December 31, 2020, of which $26 million was an immediate reduction to amortization expense. This reduction to landfill liabilities was partially offset by (i) an increase of $69 million primarily from changes in the timing and amount of costs as well as changes in estimates of remaining airspace and (ii) an increase of $8 million due to a business decision to close one of our landfills, which resulted in the acceleration of the expected timing of capping, closure and post-closure activities. This business decision also resulted in an impairment that is discussed in Note 12 to the Consolidated Financial Statements.

(b)	The amount reported for our environmental remediation liabilities includes an increase of $9 million due to a decrease in the risk-free discount rate used to measure our liabilities from 1.75% at December 31, 2019 to 1.00% at December 31, 2020.

(c)	The amount reported for our landfill liabilities includes (i) $261 million related to our acquisition of Advanced Disposal offset by (ii) a reduction of $17 million for the sale of certain landfills to GFL Environmental in connection with the Advanced Disposal acquisition. These items are discussed further in Note 18 to the Consolidated Financial Statements.

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

​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018
Interest accretion on landfill liabilities	​	$	103	​	$	98	​	$	95
Interest accretion on and discount rate adjustments to environmental remediation liabilities and recovery assets	​		9	​		13	​		(2)
Leachate and methane collection and treatment	​		189	​		173	​		150
Landfill remediation costs	​		1	​		4	​		13
Other landfill site costs	​		92	​		91	​		75
Total landfill operating costs	​	$	394	​	$	379	​	$	331

​

Amortization of Landfill Airspace — Amortization of landfill airspace, which is included as a component of depreciation and amortization expenses, includes the following:

	●	the amortization 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 amortization 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.

Amortization 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 amortizable basis of a landfill (net of accumulated amortization) 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, amortized 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, amortized on a per-ton basis using each discrete final capping event’s estimated permitted and expansion airspace. Accordingly, each landfill has multiple per-ton amortization rates.

The following table presents our landfill airspace amortization expense on a per-ton basis for the year ended December 31:

​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018
Amortization of landfill airspace (in millions)	​	$	568	​	$	575	​	$	538
Tons received, net of redirected waste (in millions)	​		112	​		121	​		116
Average landfill airspace amortization expense per ton	​	$	5.07	​	$	4.75	​	$	4.64

​

Different per-ton amortization rates are applied at each of our 268 landfills, and per-ton amortization 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 amortization expense measured on a per-ton basis can fluctuate due to changes in the mix of volumes we receive across the Company each year. In addition, amortization expense for 2020 includes approximately $11 million related to approximately 1.2 million tons received at landfills acquired as part of our Advanced Disposal transaction.

Liquidity and Capital Resources

The Company consistently generates cash flow from operations that meets and exceeds our working capital needs, payment of our dividends and investment in the business through capital expenditures and tuck-in acquisitions. 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. Additionally, the Company continually takes actions to manage costs and capital spending without compromising long-term strategic priorities. Recent actions include route optimization initiatives, reducing overtime hours, limiting hiring and optimizing our workforce through improved retention and reduced turnover, reducing non-essential selling, general and administrative expenses and lowering capital expenditures to a level that is consistent with volume changes driven by COVID-19. The Company believes that its investment grade credit ratings, large value of unencumbered assets and modest leverage enable it to obtain adequate financing to meet its ongoing capital, operating, strategic and other liquidity requirements.

Summary of Cash and Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations

The following is a summary of our cash and cash equivalents, restricted trust and escrow accounts and debt balances as of December 31 (in millions):

​	​	​	​	​	​	​
​		2020			2019
Cash and cash equivalents	​	$	553	​	$	3,561
Restricted trust and escrow accounts:	​			​		​
Insurance reserves (a)	​	$	306	​	$	270
Final capping, closure, post-closure and environmental remediation funds	​	​	114	​	​	109
Other	​		2	​		4
Total restricted trust and escrow accounts	​	$	422	​	$	383
Debt:	​			​
Current portion	​	$	551	​	$	218
Long-term portion	​		13,259	​		13,280
Total debt	​	$	13,810	​	$	13,498

(a)	Includes $75 million and $70 million as of December 31, 2020 and 2019, respectively, in other current assets in our Consolidated Balance Sheets.

Cash and cash equivalents — The decrease in cash and cash equivalents during 2020 is primarily due to funding our acquisition of Advanced Disposal in October 2020 as discussed above in Acquisition of Advanced Disposal, Inc.

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, 2020 are described in Note 7 to the Consolidated Financial Statements.

As of December 31, 2020, we had $3.3 billion of debt maturing within the next 12 months, including (i) $1.8 billion of short-term borrowings under our commercial paper program; (ii) $1.2 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities, and (iii) $242 million of other debt with scheduled maturities within the next 12 months, including $127 million of tax-exempt bonds. As of December 31, 2020, we have classified $2.7 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”), as discussed below. The remaining $551 million of debt maturing in the next 12 months is classified as current obligations.

As of December 31, 2020, we also had $54 million of variable-rate tax-exempt bonds with long-term scheduled maturities supported by letters of credit under our $3.5 billion revolving credit facility. The interest rates on our variable rate tax-exempt bonds are generally reset on either a daily or weekly basis through a remarketing process. All recent tax-exempt bond remarketings have successfully placed Company bonds with investors at market-driven rates and we currently expect future remarketings to be successful. However, if the remarketing agent is unable to remarket our bonds, the remarketing agent can put the bonds to us. In the event of a failed remarketing, we have the availability under our $3.5 billion revolving credit facility to fund these bonds until they are remarketed successfully. Accordingly, we have classified the $54 million of variable-rate tax-exempt bonds with maturities of more than one year as long-term in our Consolidated Balance Sheet as of December 31, 2020.

In November 2020, WM issued $2.5 billion of senior notes consisting of:

​

	●	$500 million of 0.750% senior notes due November 15, 2025;

	●	$500 million of 1.150% senior notes due March 15, 2028;

	●	$1.0 billion of 1.500% senior notes due March 15, 2031 and

	●	$500 million of 2.500% senior notes due November 15, 2050.

​

The net proceeds from these debt issuances were $2.48 billion and were used to term out our funding of the Advanced Disposal acquisition, to redeem our $400 million aggregate principal amount of 4.60% senior notes due March 2021, including $5 million of accrued but unpaid interest, and for general corporate purposes. See Note 7 to the Consolidated Financial Statements for more information related to the debt transactions.

​

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):

​	​	​	​	​	​	​
​		2020			2019
Revolving credit facility (a)	​	$	270	​	$	412
Other letter of credit lines (b)	​		566	​		532
​	​	$	836	​	$	944

(a)	As of December 31, 2020, we had an unused and available credit capacity of $1.4 billion.

(b)	As of December 31, 2020, these other letter of credit lines are uncommitted with terms extending through April 2022.

Guarantor Financial Information

WM Holdings has fully and unconditionally guaranteed all of WM’s senior indebtedness. WM has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WM’s other subsidiaries have guaranteed any of WM’s or WM Holdings’ debt. In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WM and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WM and WM Holdings on a combined basis after elimination of intercompany transactions between WM and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):

​

​	​	​	​
​		December 31, 2020
Balance Sheet Information:	​	​	​
Current assets		$	481
Noncurrent assets	​	​	14
Current liabilities	​		446
Noncurrent liabilities:	​	​	​
Advances due to affiliates	​	​	16,505
Other noncurrent liabilities	​		11,202

​

​	​	​	​
​		Year Ended
​	​	December 31, 2020
Income Statement Information:	​	​	​
Revenue		$	—
Operating income	​	​	—
Net loss	​	​	257

​

Summary of Cash Flow Activity

The following is a summary of our cash flows for the years ended December 31 (in millions):

​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018
Net cash provided by operating activities	​	$	3,403	​	$	3,874	​	$	3,570
Net cash used in investing activities	​	$	(4,847)	​	$	(2,376)	​	$	(2,169)
Net cash (used in) provided by financing activities	​	$	(1,559)	​	$	1,964	​	$	(1,508)

​

Net Cash Provided by Operating Activities — Our operating cash flows decreased by $471 million for the year ended December 31, 2020, as compared with the prior year period, as a result of (i) higher income tax payments related to a taxable gain on the sale of Advanced Disposal assets to GFL Environmental; (ii) increased interest payments and integration related spending due to our acquisition of Advanced Disposal; (iii) payments associated with investments we are making in our digital platform and (iv) to a lesser extent, lower earnings on our traditional Solid Waste business primarily caused by the impact of the COVID-19 pandemic. These results were partially offset by cash benefits in the current year associated with the 2019 federal alternative fuel credits.

Our operating cash flows increased by $304 million for the year ended December 31, 2019, as compared with the prior year period, as a result of (i) higher earnings in the current year period primarily associated with our collection and disposal business; (ii) lower bonus payments; (iii) lower income tax payments of $57 million and (iv) net favorable changes in our operating assets and liabilities, net of effects of acquisitions and divestitures, offset slightly by higher interest payments in the current year period primarily due to our May 2019 issuance of senior notes.

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 $4,088 million, $527 million and $466 million in 2020, 2019 and 2018, respectively, of which $4,085 million, $521 million and $460 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 Solid Waste business. Our acquisition spending in 2020 and 2019 is primarily attributable to Advanced Disposal and Petro Waste Environmental LP, respectively. See Note 18 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 $1,632 million, $1,818 million and $1,694 million for capital expenditures in 2020, 2019 and 2018, respectively. The Company continues to maintain a disciplined focus on capital management to prioritize investments in the long-term growth of our business and for the replacement of aging assets; however, in 2020 we took proactive steps to reduce the amount of capital spending required due to the decrease in volumes as a result of COVID-19.

	●	Proceeds from Divestitures — Proceeds from divestitures of businesses and other assets (net of cash divested) were $885 million, $49 million and $208 million in 2020, 2019 and 2018, respectively. In 2020, our proceeds included $856 million related to the sale of net assets to GFL Environmental. In 2019 and 2018, $8 million and $153 million of these divestitures, respectively, were made as a part of our continuous focus on improving or divesting certain non-strategic or underperforming businesses. The remaining amounts in 2020, 2019 and 2018 generally related to the sale of fixed assets.

	●	Other, Net — Our spending within other, net was $15 million, $86 million, and $223 million in 2020, 2019 and 2018, respectively. During 2020 and 2019, we used $14 million and $44 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities. We also used $20 million in 2019 to make an initial cash payment associated with a low-income housing investment. In 2019, these items were partially offset by cash proceeds from the redemption of our preferred stock received in conjunction with the 2014 sale of our Puerto Rico operations. The activity in 2018 was primarily due to changes in our investments portfolio associated with our wholly-owned insurance captive from restricted cash and cash equivalents to available-for-sale securities.

Net Cash (Used in) Provided by Financing Activities — The most significant items affecting the comparison of our financing cash flows for the periods presented are summarized below:

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

​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018
Borrowings:		​		​	​		​	​
Revolving credit facility		$	50	​	$	—	​	$	119
364-day revolving credit facility (a)		​	3,000	​	​	—	​	​	—
Canadian term loan and revolving credit facility			—	​		—	​		8
Senior notes	​	​	2,479	​	​	3,971	​	​	—
Canadian senior notes	​	​	—	​	​	373	​	​	—
Tax-exempt bonds	​	​	261	​	​	339	​	​	185
Other debt			—	​		—	​		47
​		$	5,790	​	$	4,683	​	$	359
Repayments:				​			​
Revolving credit facility		$	(50)	​	$	(11)	​	$	(108)
364-day revolving credit facility (a)		​	(3,000)	​	​	—	​	​	—
Canadian term loan and revolving credit facility			—	​		—	​		(117)
Senior notes	​	​	(4,000)	​	​	(257)	​	​	—
Advanced Disposal senior notes	​	​	(437)	​	​	—	​	​	—
Tax-exempt bonds			(212)	​		(204)	​		(167)
Other debt			(108)	​		(61)	​		(107)
​		$	(7,807)	​	$	(533)	​	$	(499)
Net cash (repayments) borrowings	​	$	(2,017)	​	$	4,150	​	$	(140)

​

​	​
(a)	In November 2020, we terminated this facility contemporaneously with repayment of all outstanding borrowings with proceeds from our November 2020 senior notes issuance.

Refer to Note 7 to the Consolidated Financial Statements for additional information related to our debt borrowings and repayments.

	●	Premiums Paid on Early Extinguishment of Debt — During the year ended December 31, 2020, we paid premiums of $30 million to redeem $3.0 billion of SMR Notes as discussed further in Note 7 to the Consolidated Financial Statements. During the year ended December 31, 2019, we paid premiums of $84 million to retire certain high-coupon senior notes. See Loss on Early Extinguishment of Debt for further discussion.

	●	Commercial Paper Program — During 2020 and 2018, we had net cash borrowings of $1,808 million and $453 million, respectively, compared to net cash repayments of $1,001 million during 2019, under our commercial paper program. Borrowings incurred in 2020 were used for the redemption of the SMR Notes and to partially fund our acquisition of Advanced Disposal. Borrowings incurred in 2019 were primarily to support acquisitions and for general corporate purposes. We repaid the outstanding balance in the second quarter of 2019 with proceeds from the May 2019 issuance of senior notes discussed above.

	●	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 repurchased $402 million, $244 million, and $1,008 million (including $4 million paid in January 2019) of our common stock during 2020, 2019 and 2018, respectively. See Note 14 to the Consolidated Financial Statements for additional information.

We announced in December 2020 that the Board of Directors has authorized up to $1.35 billion in future share repurchases, which supersedes and replaces remaining authority under any prior Board of Directors’ authorization for share repurchases. Any future share repurchases will be made at the discretion of management and will depend on factors similar to those considered by the Board of Directors in making dividend declarations.

	●	Cash Dividends — For the periods presented, all dividends have been declared by our Board of Directors. We paid aggregate cash dividends of $927 million, $876 million and $802 million during 2020, 2019 and 2018, respectively. The increase in dividend payments is due to our quarterly per share dividend increasing from $0.465 in 2018 to $0.5125 in 2019 and to $0.545 in 2020 which was offset, in part, by a reduction in the number of shares of our common stock outstanding as a result of our common stock repurchase program.

In December 2020, we announced that our Board of Directors expects to increase the quarterly dividend from $0.545 to $0.575 per share for dividends declared in 2021. 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.

	●	Proceeds from the Exercise of Common Stock Options — The exercise of common stock options generated financing cash inflows of $63 million, $67 million and $52 million during 2020, 2019 and 2018, respectively. The year-over-year changes are generally due to the number of stock options exercised and the exercise price of those options.

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:

​	​	​	​	​	​	​	​	​	​
​		2020			2019			2018
Net cash provided by operating activities	​	$	3,403	​	$	3,874	​	$	3,570
Capital expenditures	​		(1,632)	​		(1,818)	​		(1,694)
Proceeds from divestitures of businesses and other assets (net of cash divested)	​		885	​		49	​		208
Free cash flow	​	$	2,656	​	$	2,105	​	$	2,084

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Summary of Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2020 and the anticipated effect of these obligations on our liquidity in future years (in millions):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		2021			2022			2023			2024			2025			Thereafter			Total
Recorded Obligations:		​			​			​			​			​			​			​
Expected environmental liabilities: (a)		​			​			​			​			​			​			​
Final capping, closure and post-closure	​	$	138	​	$	167	​	$	132	​	$	166	​	$	148	​	$	2,930	​	$	3,681
Environmental remediation	​		26	​		48	​		40	​		33	​		12	​		61	​		220
Non-cancelable operating lease obligations	​		59	​		71	​		64	​		55	​		42	​		362	​		653
​	​	​	223	​	​	286	​	​	236	​	​	254	​	​	202	​	​	3,353	​	​	4,554
Debt payments (b) (c) (d)	​		2,056	​		665	​		647	​		468	​		1,451	​		8,700	​		13,987
Unrecorded Obligations: (e)	​			​			​			​			​			​			​		​
Interest on debt (f)	​		366	​		353	​		325	​		309	​		292	​		2,990	​		4,635
Estimated unconditional purchase obligations (g)	​		160	​		147	​		133	​		114	​		100	​		454	​		1,108
Anticipated liquidity impact as of December 31, 2020	​	$	2,805	​	$	1,451	​	$	1,341	​	$	1,145	​	$	2,045	​	$	15,497	​	$	24,284

(a)

Environmental liabilities include final capping, closure, post-closure and environmental remediation costs recorded in our Consolidated Balance Sheet as of December 31, 2020, without the impact of discounting and inflation. Our recorded environmental liabilities for final capping, closure and post-closure 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.

(c)

Our debt obligations as of December 31, 2020 include $1.2 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities. If the remarketings of our bonds are unsuccessful, then the bonds can be put to us, requiring immediate repayment. We have classified the anticipated cash flows for these contractual obligations based on the scheduled maturity of the borrowings for purposes of this disclosure. For additional information regarding the classification of these borrowings in our Consolidated Balance Sheet as of December 31, 2020, refer to Note 7 to the Consolidated Financial Statements.

(d)	Our recorded debt obligations include non-cash adjustments associated with debt issuance costs, discounts, premiums and fair value adjustments attributable to terminated interest rate derivatives. These amounts have been excluded as they will not impact our liquidity in future periods.

(e)	Our unrecorded obligations represent purchase commitments from which we expect to realize an economic benefit in future periods and interest payable on our debt. We have also made certain guarantees, as discussed in Note 11 to the Consolidated Financial Statements, that we do not expect to materially affect our current or future financial position, results of operations or liquidity.

(f)	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, 2020. As of December 31, 2020, we had $94 million of accrued interest related to our debt obligations.

(g)

Our unconditional purchase obligations are for various contractual obligations that we generally incur in the ordinary course of our business. Certain of our obligations are quantity driven. For contracts that require us to purchase minimum quantities of goods or services, we have estimated our future minimum obligations based on the current market values of the underlying products or services or contractually stated amounts. Accordingly, the amounts reported in the table are subject to change and actual cash flow obligations in the near future may be different. See Note 11 to the Consolidated Financial Statements for discussion of the nature and terms of our unconditional purchase obligations.

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, the fair value of assets and liabilities acquired in business combinations or as asset acquisitions and reserves associated with our insured and self-insured claims. Each of these items is discussed in additional detail below and in Note 3 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; (iii) the determination of each landfill’s remaining permitted and expansion airspace and (iv) the airspace associated with each final capping event.

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 required landfill buffer property. The projection of these landfill costs is dependent, in part, on future events. The remaining amortizable basis of each landfill includes costs to develop a site to its remaining permitted and expansion airspace and includes amounts previously expended and capitalized, net of accumulated airspace amortization, 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. The landfill airspace associated with each final capping event is then quantified and the final capping costs for each event are amortized over the related airspace associated with the event 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 asset, the adjustment to the asset must be amortized immediately through expense. When the change in estimate relates to a final capping event that has not been fully consumed, the adjustment to the asset is recognized in income prospectively as a component of landfill airspace amortization.

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 asset, the adjustment to the asset must be amortized immediately through expense. When the change in estimate relates to a landfill asset that has not been fully consumed, the adjustment to the asset is recognized in income prospectively as a component of landfill airspace amortization.

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, to include airspace associated with an expansion effort, 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. Second, we must believe that obtaining the expansion permit is likely, considering 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.

For unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, the expansion effort must meet all the criteria listed above. 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 amortization basis of the landfill.

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 take into account 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 amortization 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 profitability may be experienced due to higher amortization rates or higher expenses; or higher profitability 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 amortization 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 operations, or for damage caused by conditions that existed before we acquired a site. These liabilities include PRP investigations, settlements, and certain legal and consultant fees, as well as costs directly associated with site investigation and clean up, such as materials, external contractor costs and incremental internal costs directly related to the remedy. We provide for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. 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.

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, considering whether we were an owner, operator, transporter, or generator at the site, the amount and type of waste hauled to the site and the number of years we were associated with the site. 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.

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, plant 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.

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, 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 performed a qualitative assessment to determine if it was more likely than not that the fair value of a reporting unit was less than its carrying value. If the assessment indicated a possible impairment, we completed a quantitative review, comparing the estimated fair value of a reporting unit to its carrying amount, including goodwill. An impairment charge was recognized if the asset’s estimated fair value was less than its carrying amount. Fair value is typically estimated using an income approach. 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 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.

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.

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.

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.

Insured and Self-Insured Claims

We have retained a significant portion of the risks related to our health and welfare, general liability, automobile liability and workers’ compensation claims programs. The exposure for unpaid claims and associated expenses, including incurred but not reported losses, are based on an actuarial valuations and internal estimates. The accruals for these liabilities could be revised if future occurrences or loss developments significantly differ from our assumptions used. Estimated recoveries associated with our insured claims are recorded as assets when we believe that the receipt of such amounts is probable.

We use a wholly-owned insurance captive to insure the deductibles for our general liability, automobile liability and workers’ compensation claims programs. We continue to maintain conventional insurance policies with third-party insurers. In addition to certain business and operating benefits of having a wholly-owned insurance captive, we expect to receive certain cash flow benefits related to the timing of tax deductions related to these claims. WM pays an annual premium to the insurance captive, typically in the first quarter of the year, for estimated losses based on an external actuarial analysis. These premiums are held in a restricted escrow account to be used solely for paying insurance claims, resulting in a transfer of risk from WM to the insurance captive, and are allocated between current and long-term assets in our Consolidated Balance Sheets depending on timing on the use of funds.

Off-Balance Sheet Arrangements

We have financial interests in unconsolidated variable interest entities as discussed in Note 19 to the Consolidated Financial Statements. Additionally, we are party to guarantee arrangements with unconsolidated entities as discussed in the Guarantees section of Note 11 to the Consolidated Financial Statements. These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2020, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

Inflation

While inflationary increases in costs can affect our income from operations margins, we believe that inflation generally has not had, and in the near future is not expected to have, any material adverse effect on our results of operations. However, as of December 31, 2020, approximately 34% of our collection revenues are generated under long-term agreements with price adjustments based on various indices intended to measure inflation. Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.