UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended | |
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 |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(
(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 |
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.
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).
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.
☑ | 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
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at October 18, 2019 was
PART I.
Item 1. Financial Statements.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Par Value Amounts)
September 30, | December 31, | |||||
| 2019 |
| 2018 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance for doubtful accounts of $ |
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Other receivables |
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Parts and supplies |
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Other assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation and amortization of $ |
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Goodwill |
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Other intangible assets, net |
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Restricted trust and escrow accounts |
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Investments in unconsolidated entities |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND EQUITY | ||||||
Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued liabilities |
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Deferred revenues |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, less current portion |
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Deferred income taxes |
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Landfill and environmental remediation liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Equity: |
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Waste Management, Inc. stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
| ( |
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Treasury stock at cost, |
| ( |
| ( | ||
Total Waste Management, Inc. stockholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity | $ | | $ | |
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 | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | |||||
Operating revenues | $ | | $ | | $ | | $ | | ||||
Costs and expenses: |
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Operating |
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Selling, general and administrative |
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Depreciation and amortization |
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Restructuring |
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(Gain) loss from divestitures, asset impairments and unusual items, net |
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| ( | ||||
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Income from operations |
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Other income (expense): |
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Interest expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Loss on early extinguishment of debt | ( | — | ( | — | ||||||||
Equity in net losses of unconsolidated entities |
| ( |
| ( |
| ( |
| ( | ||||
Other, net |
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| — |
| ( |
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| ( |
| ( |
| ( |
| ( | |||||
Income before income taxes |
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Income tax expense |
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Consolidated net income |
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Less: Net income (loss) attributable to noncontrolling interests |
| — |
| ( |
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| ( | ||||
Net income attributable to Waste Management, Inc. | $ | | $ | | $ | | $ | | ||||
Basic earnings per common share | $ | | $ | | $ | | $ | | ||||
Diluted earnings per common share | $ | | $ | | $ | | $ | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | |||||
Consolidated net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss), net of tax: |
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Derivative instruments, net |
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Available-for-sale securities, net |
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Foreign currency translation adjustments |
| ( |
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| ( | ||||
Post-retirement benefit obligations, net |
| — | — |
| ( |
| — | |||||
Other comprehensive income (loss), net of tax |
| ( | |
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| ( | |||||
Comprehensive income |
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Less: Comprehensive income (loss) attributable to noncontrolling interests |
| — | ( |
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| ( | |||||
Comprehensive income attributable to Waste Management, Inc. | $ | | $ | | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements.
3
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Nine Months Ended | ||||||
September 30, | ||||||
| 2019 |
| 2018 | |||
Cash flows from operating activities: |
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Consolidated net income |
| $ | | $ | | |
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred income tax expense (benefit) |
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| ( | ||
Interest accretion on landfill liabilities |
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Provision for bad debts |
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Equity-based compensation expense |
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Net gain on disposal of assets |
| ( |
| ( | ||
(Gain) loss from divestitures, asset impairments and other, net |
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| ( | ||
Equity in net losses of unconsolidated entities, net of dividends |
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Loss on early extinguishment of debt | | — | ||||
Change in operating assets and liabilities, net of effects of acquisitions and divestitures: |
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Receivables |
| ( |
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Other current assets |
| ( |
| ( | ||
Other assets |
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| ( | ||
Accounts payable and accrued liabilities |
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Deferred revenues and other liabilities |
| ( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Acquisitions of businesses, net of cash acquired |
| ( |
| ( | ||
Capital expenditures |
| ( |
| ( | ||
Proceeds from divestitures of businesses and other assets (net of cash divested) |
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Other, net |
| ( |
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Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: |
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New borrowings |
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Debt repayments |
| ( |
| ( | ||
Premiums paid on early extinguishment of debt | ( | — | ||||
Net commercial paper borrowings (repayments) |
| ( |
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Common stock repurchase program |
| ( |
| ( | ||
Cash dividends |
| ( |
| ( | ||
Exercise of common stock options |
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Tax payments associated with equity-based compensation transactions |
| ( |
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Other, net |
| ( |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents |
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| — | ||
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents |
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Cash, cash equivalents and restricted cash and cash equivalents at beginning of period |
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Cash, cash equivalents and restricted cash and cash equivalents at end of period |
| $ | | $ | | |
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash and cash equivalents included in other current assets | | | ||||
Restricted cash and cash equivalents included in restricted trust and escrow accounts | | | ||||
Cash, cash equivalents and restricted cash and cash equivalents at end of period |
| $ | | $ | |
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 September 30: | |||||||||||||||||||||||||
2019 | |||||||||||||||||||||||||
Balance, June 30, 2019 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
Consolidated net income |
| | — |
| — |
| — |
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| — |
| — |
| — |
| — | ||||||||
Other comprehensive income (loss), net of tax |
| ( | — |
| — |
| — |
| — |
| ( |
| — |
| — |
| — | ||||||||
Cash dividends declared of $ |
| ( | — |
| — |
| — |
| ( |
| — |
| — |
| — |
| — | ||||||||
Equity-based compensation transactions, net |
| | — |
| — |
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| ( |
| — |
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| — | ||||||||
Common stock repurchase program |
| — | — |
| — |
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| — |
| — |
| ( |
| ( |
| — | ||||||||
Other, net |
| | — |
| — |
| — |
| — |
| — |
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| — |
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Balance, September 30, 2019 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
2018 | |||||||||||||||||||||||||
Balance, June 30, 2018 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
Consolidated net income |
| | — |
| — |
| — |
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| — |
| — |
| — |
| ( | ||||||||
Other comprehensive income (loss), net of tax |
| | — |
| — |
| — |
| — |
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| — |
| — |
| — | ||||||||
Cash dividends declared of $ |
| ( | — |
| — |
| — |
| ( |
| — |
| — |
| — |
| — | ||||||||
Equity-based compensation transactions, net |
| | — |
| — |
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| ( |
| — |
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| — | ||||||||
Common stock repurchase program |
| ( | — |
| — |
| ( |
| — |
| — |
| ( |
| ( |
| — | ||||||||
Divestiture of noncontrolling interest |
| — | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||||
Other, net |
| | — |
| — |
| — |
| — |
| — |
| ( |
| — |
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Balance, September 30, 2018 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | |
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 | |||||||||
Nine Months Ended September 30: | |||||||||||||||||||||||||
2019 | |||||||||||||||||||||||||
Balance, December 31, 2018 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
Consolidated net income |
| | — |
| — |
| — |
| |
| — |
| — |
| — |
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Other comprehensive income (loss), net of tax |
| | — |
| — |
| — |
| — |
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| — |
| — |
| — | ||||||||
Cash dividends declared of $ |
| ( | — |
| — |
| — |
| ( |
| — |
| — |
| — |
| — | ||||||||
Equity-based compensation transactions, net |
| | — |
| — |
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| |
| — |
| |
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| — | ||||||||
Common stock repurchase program |
| ( | — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — | ||||||||
Other, net |
| — | — |
| — |
| — |
| — |
| — |
| |
| — |
| — | ||||||||
Balance, September 30, 2019 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
2018 | |||||||||||||||||||||||||
Balance, December 31, 2017 | $ | | | $ | | $ | | $ | | $ | |
| ( | $ | ( | $ | | ||||||||
Adoption of new accounting standards |
| | — |
| — |
| — |
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| ( |
| — |
| — |
| — | ||||||||
Consolidated net income |
| | — |
| — |
| — |
| |
| — |
| — |
| — |
| ( | ||||||||
Other comprehensive income (loss), net of tax |
| ( | — |
| — |
| — |
| — |
| ( |
| — |
| — |
| — | ||||||||
Cash dividends declared of $ |
| ( | — |
| — |
| — |
| ( |
| — |
| — |
| — |
| — | ||||||||
Equity-based compensation transactions, net |
| | — |
| — |
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| — |
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| — | ||||||||
Common stock repurchase program |
| ( | — |
| — |
| ( |
| — |
| — |
| ( |
| ( |
| — | ||||||||
Divestiture of noncontrolling interest |
| ( | — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( | ||||||||
Other, net |
| — | — |
| — |
| — |
| — |
| — |
| |
| — |
| — | ||||||||
Balance, September 30, 2018 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | |
See Notes to Condensed Consolidated Financial Statements.
6
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
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
The Condensed Consolidated Financial Statements as of September 30, 2019 and for the three and nine months ended September 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
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
As of September 30, 2019 and December 31, 2018, we had $
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
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 $
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):
September 30, 2019 | December 31, 2018 | |||||||||||||||||
Environmental | Environmental | |||||||||||||||||
| Landfill |
| Remediation |
| Total |
| Landfill |
| Remediation |
| Total | |||||||
Current (in accrued liabilities) |
| $ | | $ | | $ | | $ | | $ | |