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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, 2019

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.)

1001 Fannin Street

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 22, 2019 was 424,232,181 (excluding treasury shares of 206,050,280).

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, 

    

2019

    

2018

(Unaudited)

ASSETS

Current assets:

 

 

  

Cash and cash equivalents

$

2,250

$

61

Accounts receivable, net of allowance for doubtful accounts of $28 and $29, respectively

 

2,017

 

1,931

Other receivables

 

243

 

344

Parts and supplies

 

104

 

102

Other assets

 

222

 

207

Total current assets

 

4,836

 

2,645

Property and equipment, net of accumulated depreciation and amortization of $18,619 and $18,264, respectively

 

12,665

 

11,942

Goodwill

 

6,512

 

6,430

Other intangible assets, net

 

547

 

572

Restricted trust and escrow accounts

 

354

 

296

Investments in unconsolidated entities

 

333

 

406

Other assets

 

739

 

359

Total assets

$

25,986

$

22,650

LIABILITIES AND EQUITY

Current liabilities:

 

  

 

  

Accounts payable

$

908

$

1,037

Accrued liabilities

 

1,296

 

1,117

Deferred revenues

 

526

 

522

Current portion of long-term debt

 

116

 

432

Total current liabilities

 

2,846

 

3,108

Long-term debt, less current portion

 

12,623

 

9,594

Deferred income taxes

 

1,289

 

1,291

Landfill and environmental remediation liabilities

 

1,900

 

1,828

Other liabilities

 

861

 

553

Total liabilities

 

19,519

 

16,374

Commitments and contingencies

 

  

 

  

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

 

4,962

 

4,993

Retained earnings

 

10,088

 

9,797

Accumulated other comprehensive income (loss)

 

(22)

 

(87)

Treasury stock at cost, 206,481,746 and 206,299,352 shares, respectively

 

(8,568)

 

(8,434)

Total Waste Management, Inc. stockholders’ equity

 

6,466

 

6,275

Noncontrolling interests

 

1

 

1

Total equity

 

6,467

 

6,276

Total liabilities and equity

$

25,986

$

22,650

See Notes to Condensed Consolidated Financial Statements.

2

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, 

    

2019

    

2018

    

2019

    

2018

Operating revenues

$

3,946

$

3,739

$

7,642

$

7,250

Costs and expenses:

 

  

 

  

Operating

 

2,443

 

2,313

 

4,741

 

4,497

Selling, general and administrative

 

391

 

365

 

800

 

738

Depreciation and amortization

 

409

 

384

 

775

 

731

Restructuring

 

 

1

 

2

 

3

(Gain) loss from divestitures, asset impairments and unusual items, net

 

7

 

(39)

 

7

 

(42)

 

3,250

 

3,024

 

6,325

 

5,927

Income from operations

 

696

 

715

 

1,317

 

1,323

Other income (expense):

 

  

 

Interest expense, net

 

(100)

 

(93)

 

(196)

 

(184)

Loss on early extinguishment of debt

(84)

(84)

Equity in net losses of unconsolidated entities

 

(16)

 

(13)

 

(25)

 

(20)

Other, net

 

1

 

 

(53)

 

1

 

(199)

 

(106)

 

(358)

 

(203)

Income before income taxes

 

497

 

609

 

959

 

1,120

Income tax expense

 

115

 

110

 

230

 

226

Consolidated net income

 

382

 

499

 

729

 

894

Less: Net income (loss) attributable to noncontrolling interests

 

1

 

 

1

 

(1)

Net income attributable to Waste Management, Inc.

$

381

$

499

$

728

$

895

Basic earnings per common share

$

0.90

$

1.16

$

1.71

$

2.07

Diluted earnings per common share

$

0.89

$

1.15

$

1.70

$

2.06

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Millions)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Consolidated net income

$

382

$

499

$

729

$

894

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Derivative instruments, net

 

2

 

2

 

4

 

4

Available-for-sale securities, net

 

4

 

 

9

 

(1)

Foreign currency translation adjustments

 

25

 

(23)

 

53

 

(55)

Post-retirement benefit obligations, net

 

 

(1)

 

Other comprehensive income (loss), net of tax

 

31

(21)

 

65

 

(52)

Comprehensive income

 

413

 

478

 

794

 

842

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

1

 

1

 

(1)

Comprehensive income attributable to Waste Management, Inc.

$

412

$

478

$

793

$

843

See Notes to Condensed Consolidated Financial Statements.

3

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

(Unaudited)

Six Months Ended

June 30, 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

  

Consolidated net income

 

$

729

$

894

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

 

 

  

Depreciation and amortization

 

775

 

731

Deferred income tax expense (benefit)

 

(12)

 

(21)

Interest accretion on landfill liabilities

 

47

 

47

Provision for bad debts

 

19

 

22

Equity-based compensation expense

 

43

 

41

Net gain on disposal of assets

 

(5)

 

(10)

(Gain) loss from divestitures, asset impairments and other, net

 

78

 

(42)

Equity in net losses of unconsolidated entities, net of dividends

 

25

 

20

Loss on early extinguishment of debt

84

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

 

  

 

  

Receivables

 

19

 

202

Other current assets

 

(5)

 

(9)

Other assets

 

4

 

(2)

Accounts payable and accrued liabilities

 

127

 

31

Deferred revenues and other liabilities

 

(28)

 

(120)

Net cash provided by operating activities

 

1,900

 

1,784

Cash flows from investing activities:

 

  

 

  

Acquisitions of businesses, net of cash acquired

 

(440)

 

(263)

Capital expenditures

 

(1,049)

 

(836)

Proceeds from divestitures of businesses and other assets (net of cash divested)

 

20

 

96

Other, net

 

(96)

 

(7)

Net cash used in investing activities

 

(1,565)

 

(1,010)

Cash flows from financing activities:

 

  

 

  

New borrowings

 

3,971

 

83

Debt repayments

 

(385)

 

(196)

Premiums paid on early extinguishment of debt

(84)

Net commercial paper borrowings (repayments)

 

(1,001)

 

443

Common stock repurchase program

 

(248)

 

(550)

Cash dividends

 

(440)

 

(406)

Exercise of common stock options

 

45

 

33

Tax payments associated with equity-based compensation transactions

 

(30)

 

(28)

Other, net

 

(6)

 

(26)

Net cash provided by (used in) financing activities

 

1,822

 

(647)

Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents

 

2

 

(1)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents

 

2,159

 

126

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

 

183

 

293

Cash, cash equivalents and restricted cash and cash equivalents at end of period

 

$

2,342

$

419

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period:

Cash and cash equivalents

$

2,250

$

47

Restricted cash and cash equivalents included in other current assets

18

70

Restricted cash and cash equivalents included in restricted trust and escrow accounts

74

302

Cash, cash equivalents and restricted cash and cash equivalents at end of period

 

$

2,342

$

419

See Notes to Condensed Consolidated Financial Statements.

4

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In Millions, Except Shares in Thousands)

(Unaudited)

Waste Management, Inc. Stockholders’ Equity

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Noncontrolling

  

Total

  

Shares

  

Amounts

  

Capital

  

Earnings

  

Income (Loss)

  

Shares

  

Amounts

  

Interests

Three Months Ended June 30:

2019

Balance, March 31, 2019

$

6,417

630,282

$

6

$

4,978

$

9,924

$

(53)

 

(205,556)

$

(8,440)

$

2

Consolidated net income

 

382

 

 

 

381

 

 

 

 

1

Other comprehensive income (loss), net of tax

 

31

 

 

 

 

31

 

 

 

Cash dividends declared of $0.5125 per common share

 

(217)

 

 

 

(217)

 

 

 

 

Equity-based compensation transactions, net

 

36

 

 

20

 

 

 

387

 

16

 

Common stock repurchase program

 

(180)

 

 

(36)

 

 

 

(1,314)

 

(144)

 

Other, net

 

(2)

 

 

 

 

 

1

 

 

(2)

Balance, June 30, 2019

$

6,467

630,282

$

6

$

4,962

$

10,088

$

(22)

 

(206,482)

$

(8,568)

$

1

2018

Balance, March 31, 2018

$

6,065

630,282

$

6

$

4,916

$

8,867

$

(28)

 

(198,511)

$

(7,717)

$

21

Consolidated net income

 

499

 

 

 

499

 

 

 

 

Other comprehensive income (loss), net of tax

 

(21)

 

 

 

 

(21)

 

 

 

Cash dividends declared of $0.465 per common share

 

(200)

 

 

 

(200)

 

 

 

 

Equity-based compensation transactions, net

 

24

 

 

19

 

 

 

141

 

5

 

Common stock repurchase program

 

(292)

 

 

 

 

 

(3,537)

 

(292)

 

Divestiture of noncontrolling interest

 

(19)

 

 

 

 

 

 

 

(19)

Other, net

 

 

 

 

 

 

1

 

 

Balance, June 30, 2018

$

6,056

630,282

$

6

$

4,935

$

9,166

$

(49)

 

(201,906)

$

(8,004)

$

2

See Notes to Condensed Consolidated Financial Statements.

5

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ─ (Continued)

(In Millions, Except Shares in Thousands)

(Unaudited)

Waste Management, Inc. Stockholders’ Equity

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury Stock

Noncontrolling

Total

  

Shares

  

Amounts

  

Capital

  

Earnings

  

Income (Loss)

  

Shares

  

Amounts

  

Interests

Six Months Ended June 30:

2019

Balance, December 31, 2018

$

6,276

630,282

$

6

$

4,993

$

9,797

$

(87)

 

(206,299)

$

(8,434)

$

1

Consolidated net income

 

729

 

 

 

728

 

 

 

 

1

Other comprehensive income (loss), net of tax

 

65

 

 

 

 

65

 

 

 

Cash dividends declared of $1.025 per common share

 

(440)

 

 

 

(440)

 

 

 

 

Equity-based compensation transactions, net

 

82

 

 

5

 

3

 

 

1,808

 

74

 

Common stock repurchase program

 

(244)

 

 

(36)

 

 

 

(1,993)

 

(208)

 

Other, net

 

(1)

 

 

 

 

 

2

 

 

(1)

Balance, June 30, 2019

$

6,467

630,282

$

6

$

4,962

$

10,088

$

(22)

 

(206,482)

$

(8,568)

$

1

2018

Balance, December 31, 2017

$

6,042

630,282

$

6

$

4,933

$

8,588

$

8

 

(196,964)

$

(7,516)

$

23

Adoption of new accounting standards

 

80

 

 

 

85

 

(5)

 

 

 

Consolidated net income

 

894

 

 

 

895

 

 

 

 

(1)

Other comprehensive income (loss), net of tax

 

(52)

 

 

 

 

(52)

 

 

 

Cash dividends declared of $0.93 per common share

 

(406)

 

 

 

(406)

 

 

 

 

Equity-based compensation transactions, net

 

68

 

 

2

 

4

 

 

1,624

 

62

 

Common stock repurchase program

 

(550)

 

 

 

 

 

(6,568)

 

(550)

 

Divestiture of noncontrolling interest

 

(19)

 

 

 

 

 

 

 

(19)

Other, net

 

(1)

 

 

 

 

 

2

 

 

(1)

Balance, June 30, 2018

$

6,056

630,282

$

6

$

4,935

$

9,166

$

(49)

 

(201,906)

$

(8,004)

$

2

See Notes to Condensed Consolidated Financial Statements.

6

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    Basis of Presentation

The financial statements presented in this report represent the consolidation of Waste Management, Inc., a Delaware corporation; its wholly-owned and majority-owned subsidiaries; and certain variable interest entities for which Waste Management, Inc. or its subsidiaries are the primary beneficiaries as described in Note 14. Waste Management, Inc. is a holding company and all operations are conducted by its subsidiaries. When the terms “the Company,” “we,” “us” or “our” are used in this document, those terms refer to Waste Management, Inc., its consolidated subsidiaries and consolidated variable interest entities. When we use the term “WM,” we are referring only to Waste Management, Inc., the parent holding company.

We are North America’s leading provider of comprehensive waste management environmental services. 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. 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. Through our subsidiaries, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the United States (“U.S.”).

We evaluate, oversee and manage the financial performance of our Solid Waste business subsidiaries through our 17 Areas. We also provide additional services that are not managed through our Solid Waste business, which are presented in this report as “Other.” Additional information related to our segments is included in Note 8.

The Condensed Consolidated Financial Statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 are unaudited. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows, and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.

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 and reserves associated with our insured and self-insured claims. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Revenue Recognition

We generally recognize revenue as services are performed or products are delivered. For example, revenue typically is recognized as waste is collected, tons are received at our landfills or transfer stations, or recycling commodities are collected or delivered as product. We bill for certain services prior to performance. Such services include, among others, certain commercial and residential contracts and equipment rentals. These advance billings are included in deferred revenues and recognized as revenue in the period service is provided. Substantially all our deferred revenues during the reported periods are realized as revenues within one to three months when the related services are performed.

7

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Contract Acquisition Costs

Our incremental direct costs of obtaining a contract, which consist primarily of sales incentives, are generally deferred and amortized to selling, general and administrative expense over the estimated life of the relevant customer relationship, ranging from 5 to 13 years. Contract acquisition costs that are paid to the customer are deferred and amortized as a reduction in revenue over the contract life. Our contract acquisition costs are classified as current or noncurrent based on the timing of when we expect to recognize amortization and are included in other assets in our Condensed Consolidated Balance Sheet.

As of June 30, 2019 and December 31, 2018, we had $149 million and $145 million, respectively, of deferred contract costs, of which $113 million and $109 million, respectively, was related to deferred sales incentives. During the three and six months ended June 30, 2019, we amortized $6 million and $11 million of sales incentives to selling, general and administrative expense, and $5 million and $11 million of other contract acquisition costs as a reduction in revenue, respectively. During the three and six months ended June 30, 2018, we amortized $5 million and $11 million of sales incentives to selling, general and administrative expense, and $9 million and $19 million of other contract acquisition costs as a reduction in revenue, respectively.

Adoption of New Accounting Standard

Leases — In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 associated with lease accounting. There were further amendments, including practical expedients, with the issuance of ASU 2018-01 in January 2018, ASU 2018-11 in July 2018 and ASU 2018-20 in December 2018. On January 1, 2019, we adopted these ASUs using the optional transition method which allows entities to continue to apply historical accounting guidance in the comparative periods presented in the year of adoption. Accordingly, our financial statements for the reported periods after January 1, 2019 are presented under this amended guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance.

We elected to apply the following package of practical expedients on a consistent basis permitting entities not to reassess: (i) whether any expired or existing contracts are or contain a lease; (ii) lease classification for any expired or existing leases and (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the amended guidance. In addition, we applied (i) the practical expedient for land easements, which allows the Company to not apply the lease standard to certain existing land easements at transition and (ii) the practical expedient to include both the lease and non-lease components as a single component and account for it as a lease.

The impact of adopting the amended guidance primarily relates to the recognition of lease assets and lease liabilities on the balance sheet for all leases previously classified as operating leases. We recognized $385 million of right-of-use assets and $385 million of related lease liabilities as of January 1, 2019 for our contracts that are classified as operating leases. Leases with an initial term of 12 months, which are not expected to be renewed beyond one year, are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. Our accounting for financing leases, which were formerly referred to as capital leases, remained substantially unchanged. There were no other material impacts on our consolidated financial statements. See Note 4 for additional information and disclosures related to our adoption of this amended guidance.

New Accounting Standard Pending Adoption

Financial Instrument Credit Losses — In June 2016, the FASB issued ASU 2016-13 associated with the measurement of credit losses on financial instruments. The amended guidance replaces the current incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates.

8

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amended guidance is effective for the Company on January 1, 2020. We are assessing the provisions of this amended guidance and evaluating the impact on our consolidated financial statements.

Reclassifications

When necessary, reclassifications have been made to our prior period financial information to conform to the current year presentation and are not material to our consolidated financial statements.

2.    Landfill and Environmental Remediation Liabilities

Liabilities for landfill and environmental remediation costs are presented in the table below (in millions):

June 30, 2019

December 31, 2018

Environmental

Environmental

    

Landfill

    

Remediation

    

Total

    

Landfill

    

Remediation

    

Total

Current (in accrued liabilities)

 

$

125

$

26

$

151

$

143

$

26

$

169

Long-term

 

1,685

 

215

 

1,900

  

 

1,617

 

211

 

1,828

 

$

1,810

$

241

$

2,051

$

1,760

$

237

$

1,997

The changes to landfill and environmental remediation liabilities for the six months ended June 30, 2019 are reflected in the table below (in millions):

Environmental

    

Landfill

    

Remediation

December 31, 2018

$

1,760

$

237

Obligations incurred and capitalized

 

36

  

 

Obligations settled

 

(41)

  

 

(9)

Interest accretion

 

47