Waste Management 10-Q 2023-06-30

Filed 2023-07-26. 8 sections, 169K characters. Original on sec.gov · Markdown · JSON

Cover and table of contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended June 30, 2023

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission file number 1-12154

Waste Management, Inc.

(Exact name of registrant as specified in its charter)


Delaware	73-1309529
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

800 Capitol Street

Suite 3000

Houston**,** Texas 77002

(Address of principal executive offices)

(713) 512-6200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	WM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☑		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at July 21, 2023 was 405,059,457 (excluding treasury shares of 225,223,004).

PART I.

Item 1. Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Millions, Except Share and Par Value Amounts)


	June 30,		December 31,
	2023		2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	144	$	351
Accounts receivable, net of allowance for doubtful accounts of $25 and $26, respectively		2,576		2,461
Other receivables, net of allowance for doubtful accounts of $5 and $7, respectively		270		291
Parts and supplies		170		164
Other assets		320		284
Total current assets		3,480		3,551
Property and equipment, net of accumulated depreciation and depletion of $22,400 and $21,627, respectively		15,917		15,719
Goodwill		9,399		9,323
Other intangible assets, net		809		827
Restricted funds		459		348
Investments in unconsolidated entities		564		578
Other assets		986		1,021
Total assets	$	31,614	$	31,367
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,626	$	1,766
Accrued liabilities		1,544		1,625
Deferred revenues		568		589
Current portion of long-term debt		513		414
Total current liabilities		4,251		4,394
Long-term debt, less current portion		14,855		14,570
Deferred income taxes		1,778		1,733
Landfill and environmental remediation liabilities		2,734		2,700
Other liabilities		1,068		1,106
Total liabilities		24,686		24,503
Commitments and contingencies (Note 6)
Equity:
Waste Management, Inc. stockholders’ equity:
Common stock, $0.01 par value; 1,500,000,000 shares authorized; 630,282,461 shares issued		6		6
Additional paid-in capital		5,341		5,314
Retained earnings		13,744		13,167
Accumulated other comprehensive (loss) income		(32)		(69)
Treasury stock at cost, 225,407,474 and 222,396,166 shares, respectively		(12,150)		(11,569)
Total Waste Management, Inc. stockholders’ equity		6,909		6,849
Noncontrolling interests		19		15
Total equity		6,928		6,864
Total liabilities and equity	$	31,614	$	31,367

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Millions, Except per Share Amounts)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Operating revenues	$	5,119	$	5,027	$	10,011	$	9,688
Costs and expenses:
Operating		3,186		3,142		6,272		6,045
Selling, general and administrative		467		487		943		978
Depreciation, depletion and amortization		521		508		1,026		990
Restructuring		1		—		4		—
(Gain) loss from divestitures, asset impairments and unusual items, net		—		—		(3)		17
		4,175		4,137		8,242		8,030
Income from operations		944		890		1,769		1,658
Other income (expense):
Interest expense, net		(125)		(93)		(245)		(178)
Equity in net losses of unconsolidated entities		(12)		(17)		(23)		(32)
Other, net		2		(4)		4		(1)
		(135)		(114)		(264)		(211)
Income before income taxes		809		776		1,505		1,447
Income tax expense		196		189		360		346
Consolidated net income		613		587		1,145		1,101
Less: Net income (loss) attributable to noncontrolling interests		(2)		—		(3)		1
Net income attributable to Waste Management, Inc.	$	615	$	587	$	1,148	$	1,100
Basic earnings per common share	$	1.52	$	1.42	$	2.82	$	2.65
Diluted earnings per common share	$	1.51	$	1.41	$	2.81	$	2.64

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Millions)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Consolidated net income	$	613	$	587	$	1,145	$	1,101
Other comprehensive income (loss), net of tax:
Derivative instruments, net		6		2		11		3
Available-for-sale securities, net		—		(7)		5		(20)
Foreign currency translation adjustments		20		(27)		22		(17)
Post-retirement benefit obligations, net		(1)		—		(1)		—
Other comprehensive income (loss), net of tax		25		(32)		37		(34)
Comprehensive income		638		555		1,182		1,067
Less: Comprehensive income (loss) attributable to noncontrolling interests		(2)		—		(3)		1
Comprehensive income attributable to Waste Management, Inc.	$	640	$	555	$	1,185	$	1,066

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

(Unaudited)


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Consolidated net income	$	1,145	$	1,101
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation, depletion and amortization		1,026		990
Deferred income tax expense (benefit)		31		(64)
Interest accretion on landfill and environmental remediation liabilities		65		55
Provision for bad debts		20		24
Equity-based compensation expense		47		51
Net gain on disposal of assets		(20)		(10)
(Gain) loss from divestitures, asset impairments and other, net		(3)		17
Equity in net losses of unconsolidated entities, net of dividends		23		32
Change in operating assets and liabilities, net of effects of acq

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included under Item 1 and our Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.

This Quarterly Report on Form 10-Q contains certain forward-looking statements that are made subject to the safe harbor protections provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend,” and words of a similar nature and include estimates or projections of financial and other data; comments on expectations relating to future periods; plans or objectives for the future; and statements of opinion, view or belief about current and future events, circumstances or performance. You should view these statements with caution. They are based on the facts and circumstances known to us as of the date the statements are made. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to failure to implement our optimization, automation, growth, and cost savings initiatives and overall business strategy; failure to obtain the results anticipated from strategic initiatives, investments, acquisitions or new lines of business; failure to identify acquisition targets, consummate and integrate acquisitions; environmental and other regulations, including developments related to emerging contaminants, gas emissions, renewable energy and environmental, social and governance (“ESG”) performance and disclosure; significant environmental, safety or other incidents resulting in liabilities or brand damage; failure to obtain and maintain necessary permits due to land scarcity, public opposition or otherwise; diminishing landfill capacity, resulting in increased costs and the need for disposal alternatives; failure to attract, hire and retain key team members and a high quality workforce; increases in labor costs due to union organizing activities or changes in wage and labor related regulations; disruption and costs resulting from extreme weather and destructive climate events; failure to achieve our sustainability goals or execute on our sustainability-related strategy and initiatives; public health risk, increased costs and disruption due to a future resurgence of pandemic conditions and restrictions; macroeconomic conditions, geopolitical conflict and market disruption resulting in labor, supply chain and transportation constraints, inflationary cost pressures and fluctuations in commodity prices, fuel and other energy costs; increased competition; pricing actions; impacts from international trade restrictions; competitive disposal alternatives, diversion of waste from landfills and declining waste volumes; weakness in general economic conditions and capital markets, including potential for an economic recession; instability of financial institutions; adoption of new tax legislation; fuel shortages; failure to develop and protect new technology; failure of technology to perform as expected; failure to prevent, detect and address cybersecurity incidents or comply with privacy regulations; negative outcomes of litigation or governmental proceedings; and decisions or developments that result in impairment charges and other risks discussed in our filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 as updated by Part II, Item 1A. Risk Factors, included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023. We assume no obligation to update any forward-looking statement, including financial estimates and forecasts, whether as a result of future events, circumstances or developments or otherwise.

Overview

We are North America’s leading provider of comprehensive environmental solutions, providing services throughout the United States (“U.S.”) and Canada. We partner with our customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. We own or operate the largest network of landfills throughout the U.S. and Canada. In order to make disposal more practical for larger urban markets, where the distance to landfills is typically farther, we manage transfer stations that consolidate, compact and transport waste efficiently and economically. Through our subsidiaries, including our Waste Management Renewable Energy (“WM Renewable Energy”) business, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and renewable natural gas, which is a significant source of fuel that we allocate to our natural gas fleet. Additionally, we are a leading recycler in the U.S. and Canada, handling materials that include paper, cardboard, glass, plastic and metal. Our “Solid Waste”

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

Our senior management evaluates, oversees and manages the financial performance of our Solid Waste operations through two operating segments. Our East Tier primarily consists of geographic areas located in the Eastern U.S., the Great Lakes region and substantially all of Canada. Our West Tier primarily includes geographic areas located in the Western U.S., including the upper Midwest region, and British Columbia, Canada. Each of our Solid Waste operating segments provides integrated environmental services, including collection, transfer, recycling, and disposal.

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

Strategy

Our fundamental strategy has not changed; we remain dedicated to providing long-term value to our stockholders by successfully executing our core strategy of focused differentiation and continuous improvement. We have enabled a people-first, technology-led focus to drive our mission to maximize resource value, while minimizing environmental impact, and sustainability and environmental stewardship is embedded in all that we do. Our strategy leverages and sustains the strongest asset network in the

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Except for the general financial institution instability that was publicly reported during the first quarter of 2023, as described further in Part II, Item 1A. Risk Factors, included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, the information about market risks as of June 30, 2023 does not materially differ from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures.

Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) in ensuring that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2023 (the end of the period covered by this Quarterly Report on Form 10-Q) at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended June 30, 2023. We determined that there were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

Item 1. Legal Proceedings.

Information regarding our legal proceedings can be found under the Environmental Matters and Litigation sections of Note 6 to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, as updated by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table summarizes common stock repurchases made during the second quarter of 2023 (shares in millions):

Issuer Purchases of Equity Securities


				Total Number of
	Total			Shares Purchased as	Approximate Maximum
	Number of	Average		Part of Publicly	Dollar Value of Shares that
	Shares	Price Paid		Announced Plans or	May Yet be Purchased Under
Period	Purchased	per Share(a)		Programs	the Plans or Programs(a)
April 1 — 30	—	$	—	—	$	1.15 billion
May 1 — 31 (b)(c)	1.9	$	164.96	1.9	$	899 million
June 1 — 30 (c)	0.1	$	164.92	0.1	$	878 million	(d)
Total	2.0	$	164.96	2.0

(a)

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. We reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased. In the table above and footnotes below, the average price paid per share, total repurchase costs and approximate maximum dollar value of shares that may yet be purchased under the plans or programs exclude the 1% excise tax.

(b)

In the first quarter of 2023, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $350 million of our common stock. At the beginning of the repurchase period, we delivered $350 million cash and received 1.9 million shares based on a stock price of $150.34. The ASR agreement completed and in May 2023 we received 0.4 million additional shares based on a final weighted average price of $153.90. In May 2023, under a new ASR agreement, we repurchased $250 million of our common stock and received 1.5 million shares based on a final weighted average price of $163.62.

(c)	Subsequent to the completion of the ASR agreement, we repurchased 133,501 shares of our common stock in open market transactions in compliance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act for $22 million, inclusive of per-share commissions, at a weighted average price of $164.79, of which $2 million was paid in July 2023.

(d)

As of June 30, 2023, the Company has authorization for $878 million of future share repurchases, exclusive of the 1% excise tax discussed above. Any future share repurchases pursuant to this authorization of our Board of Directors 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, including our net earnings, financial condition and cash required for future business plans, growth and acquisitions.

Item 4. Mine Safety Disclosures.

Information concerning mine safety and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this quarterly report.

Item 5. Other Information.

Securities Trading Plans of Directors and Executive Officers

On May 22, 2023, James C. Fish, Jr., President, Chief Executive Officer and member of our Board of Directors, adopted a stock trading plan (the “First Fish Trading Plan”). The First Fish Trading Plan went into effect on the date of adoption and was not intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The First Fish Trading Plan provided for the potential exercise of 83,419 vested stock options and instructed that, upon our common stock reaching a specified market price, the options would automatically be exercised and the Company would withhold shares of common stock necessary to cover tax requirements and the exercise price of such options. The First Fish Trading Plan provided that Mr. Fish would continue to hold all remaining shares of common stock resulting from the option exercise after the net share settlement process. The option exercise did not occur, and the First Fish Trading Plan expired pursuant to its terms on June 7, 2023.

On May 30, 2023, Mr. Fish adopted a stock trading plan (the “Second Fish Trading Plan”) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Second Fish Trading Plan will commence on September 1, 2023 and will automatically terminate on the earlier of January 31, 2024 and the completion of all of the contemplated stock sales set forth therein. The Second Fish Trading Plan provides for the sale of 9,550 shares of our common stock upon our common stock reaching each of three specified market prices, for an aggregate total sale of up to 28,650 shares of our common stock pursuant to such plan.

Item 6. Exhibits.


Exhibit No.		Description
10.1		Waste Management, Inc. 2023 Stock Incentive Plan [Incorporated by reference to Exhibit 10.1 to Form 8-K filed May 10, 2023].

22.1*		Guarantor Subsidiary.

31.1*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 James C. Fish, Jr., President and Chief Executive Officer.

31.2*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 Devina A. Rankin, Executive Vice President and Chief Financial Officer.

32.1**		Certification Pursuant to 18 U.S.C. §1350 of James C. Fish, Jr., President and Chief Executive Officer.

32.2**		Certification Pursuant to 18 U.S.C. §1350 of Devina A. Rankin, Executive Vice President and Chief Financial Officer.

95*		Mine Safety Disclosures.

101.INS*		Inline XBRL Instance.

101.SCH*		Inline XBRL Taxonomy Extension Schema.

101.CAL*		Inline XBRL Taxonomy Extension Calculation.

101.LAB*		Inline XBRL Taxonomy Extension Labels.

101.PRE*		Inline XBRL Taxonomy Extension Presentation.

101.DEF*		Inline XBRL Taxonomy Extension Definition.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	WASTE MANAGEMENT, INC.

	By:	/s/ DEVINA A. RANKIN
		Devina A. Rankin
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

	WASTE MANAGEMENT, INC.

	By:	/s/ JOHN CARROLL
		John Carroll
		Vice President and
		Chief Accounting Officer
		(Principal Accounting Officer)



Date: July 26, 2023