SEC Filing | Waste Management

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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 September 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 October 18, 2019 was 424,241,200 (excluding treasury shares of 206,041,261).

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:
Cash and cash equivalents	$	2,915	$	61
Accounts receivable, net of allowance for doubtful accounts of $27 and $29, respectively		2,010		1,931
Other receivables		270		344
Parts and supplies		109		102
Other assets		256		207
Total current assets		5,560		2,645
Property and equipment, net of accumulated depreciation and amortization of $18,499 and $18,264, respectively		12,805		11,942
Goodwill		6,550		6,430
Other intangible assets, net		543		572
Restricted trust and escrow accounts		336		296
Investments in unconsolidated entities		494		406
Other assets		821		359
Total assets	$	27,109	$	22,650
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	903	$	1,037
Accrued liabilities		1,358		1,117
Deferred revenues		517		522
Current portion of long-term debt		211		432
Total current liabilities		2,989		3,108
Long-term debt, less current portion		13,147		9,594
Deferred income taxes		1,331		1,291
Landfill and environmental remediation liabilities		1,917		1,828
Other liabilities		938		553
Total liabilities		20,322		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		5,026		4,993
Retained earnings		10,364		9,797
Accumulated other comprehensive income (loss)		(33)		(87)
Treasury stock at cost, 206,122,185 and 206,299,352 shares, respectively		(8,578)		(8,434)
Total Waste Management, Inc. stockholders’ equity		6,785		6,275
Noncontrolling interests		2		1
Total equity		6,787		6,276
Total liabilities and equity	$	27,109	$	22,650

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				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Operating revenues	$	3,967	$	3,822	$	11,609	$	11,072
Costs and expenses:
Operating		2,441		2,373		7,182		6,870
Selling, general and administrative		386		345		1,186		1,083
Depreciation and amortization		404		376		1,179		1,107
Restructuring		1		1		3		4
(Gain) loss from divestitures, asset impairments and unusual items, net		1		28		8		(14)
		3,233		3,123		9,558		9,050
Income from operations		734		699		2,051		2,022
Other income (expense):
Interest expense, net		(105)		(93)		(301)		(277)
Loss on early extinguishment of debt		(1)		—		(85)		—
Equity in net losses of unconsolidated entities		(14)		(9)		(39)		(29)
Other, net		1		—		(52)		1
		(119)		(102)		(477)		(305)
Income before income taxes		615		597		1,574		1,717
Income tax expense		120		99		350		325
Consolidated net income		495		498		1,224		1,392
Less: Net income (loss) attributable to noncontrolling interests		—		(1)		1		(2)
Net income attributable to Waste Management, Inc.	$	495	$	499	$	1,223	$	1,394
Basic earnings per common share	$	1.17	$	1.16	$	2.88	$	3.24
Diluted earnings per common share	$	1.16	$	1.16	$	2.86	$	3.22

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	$	495	$	498	$	1,224	$	1,392
Other comprehensive income (loss), net of tax:
Derivative instruments, net		2		2		6		6
Available-for-sale securities, net		4		9		13		8
Foreign currency translation adjustments		(17)		22		36		(33)
Post-retirement benefit obligations, net		—		—		(1)		—
Other comprehensive income (loss), net of tax		(11)		33		54		(19)
Comprehensive income		484		531		1,278		1,373
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		(1)		1		(2)
Comprehensive income attributable to Waste Management, Inc.	$	484	$	532	$	1,277	$	1,375

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

(Unaudited)


	Nine Months Ended
	September 30,
	2019		2018
Cash flows from operating activities:
Consolidated net income	$	1,224	$	1,392
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		1,179		1,107
Deferred income tax expense (benefit)		29		(32)
Interest accretion on landfill liabilities		72		71
Provision for bad debts		27		35
Equity-based compensation expense		62		63
Net gain on disposal of assets		(19)		(21)
(Gain) loss from divestitures, asset impairments and other, net		79		(14)
Equity in net losses of unconsolidated entities, net of dividends		39		29
Loss on early extinguishment of debt		85		—
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Receivables		(2)		43
Other current assets		(52)		(22)
Other assets		7		(3)
Accounts payable and accrued liabilities		213		177
Deferred revenues and other liabilities		(91)		(167)
Net cash provided by operating activities		2,852		2,658
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(513)		(342)
Capital expenditures		(1,532)		(1,240)
Proceeds from divestitures of businesses and other assets (net of cash divested)		29		106
Other, net		(80)		(30)
Net cash used in investing activities		(2,096)		(1,506)
Cash flows from financing activities:
New borrowings		4,558		174
Debt repayments		(502)		(338)
Premiums paid on early extinguishment of debt		(84)		—
Net commercial paper borrowings (repayments)		(1,001)		523
Common stock repurchase program		(248)		(750)
Cash dividends		(658)		(605)
Exercise of common stock options		60		45
Tax payments associated with equity-based compensation transactions		(32)		(28)
Other, net		(13)		(36)
Net cash provided by (used in) financing activities		2,080		(1,015)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents		1		—
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		2,837		137
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	$	3,020	$	430

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period:
Cash and cash equivalents	$	2,915	$	83
Restricted cash and cash equivalents included in other current assets		31		70
Restricted cash and cash equivalents included in restricted trust and escrow accounts		74		277
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	3,020	$	430

See Notes to Condensed Consolidated Financial Statements.

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	$	6,467	630,282	$	6	$	4,962	$	10,088	$	(22)	(206,482)	$	(8,568)	$	1
Consolidated net income		495	—		—		—		495		—	—		—		—
Other comprehensive income (loss), net of tax		(11)	—		—		—		—		(11)	—		—		—
Cash dividends declared of $0.5125 per common share		(218)	—		—		—		(218)		—	—		—		—
Equity-based compensation transactions, net		53	—		—		28		(1)		—	613		26		—
Common stock repurchase program		—	—		—		36		—		—	(254)		(36)		—
Other, net		1	—		—		—		—		—	1		—		1
Balance, September 30, 2019	$	6,787	630,282	$	6	$	5,026	$	10,364	$	(33)	(206,122)	$	(8,578)	$	2

2018
Balance, June 30, 2018	$	6,056	630,282	$	6	$	4,935	$	9,166	$	(49)	(201,906)	$	(8,004)	$	2
Consolidated net income		498	—		—		—		499		—	—		—		(1)
Other comprehensive income (loss), net of tax		33	—		—		—		—		33	—		—		—
Cash dividends declared of $0.465 per common share		(199)	—		—		—		(199)		—	—		—		—
Equity-based compensation transactions, net		52	—		—		32		(2)		—	557		22		—
Common stock repurchase program		(200)	—		—		(40)		—		—	(1,807)		(160)		—
Divestiture of noncontrolling interest		—	—		—		—		—		—	—		—		—
Other, net		1	—		—		—		—		—	(1)		—		1
Balance, September 30, 2018	$	6,241	630,282	$	6	$	4,927	$	9,464	$	(16)	(203,157)	$	(8,142)	$	2

See Notes to Condensed Consolidated Financial Statements.

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	$	6,276	630,282	$	6	$	4,993	$	9,797	$	(87)	(206,299)	$	(8,434)	$	1
Consolidated net income		1,224	—		—		—		1,223		—	—		—		1
Other comprehensive income (loss), net of tax		54	—		—		—		—		54	—		—		—
Cash dividends declared of $1.5375 per common share		(658)	—		—		—		(658)		—	—		—		—
Equity-based compensation transactions, net		135	—		—		33		2		—	2,421		100		—
Common stock repurchase program		(244)	—		—		—		—		—	(2,247)		(244)		—
Other, net		—	—		—		—		—		—	3		—		—
Balance, September 30, 2019	$	6,787	630,282	$	6	$	5,026	$	10,364	$	(33)	(206,122)	$	(8,578)	$	2

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		1,392	—		—		—		1,394		—	—		—		(2)
Other comprehensive income (loss), net of tax		(19)	—		—		—		—		(19)	—		—		—
Cash dividends declared of $1.395 per common share		(605)	—		—		—		(605)		—	—		—		—
Equity-based compensation transactions, net		120	—		—		34		2		—	2,181		84		—
Common stock repurchase program		(750)	—		—		(40)		—		—	(8,375)		(710)		—
Divestiture of noncontrolling interest		(19)	—		—		—		—		—	—		—		(19)
Other, net		—	—		—		—		—		—	1		—		—
Balance, September 30, 2018	$	6,241	630,282	$	6	$	4,927	$	9,464	$	(16)	(203,157)	$	(8,142)	$	2

See Notes to Condensed Consolidated Financial Statements.

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 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 three months when the related services are performed.

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 September 30, 2019 and December 31, 2018, we had $150 million and $145 million, respectively, of deferred contract costs, of which $115 million and $109 million, respectively, was related to deferred sales incentives. During the three and nine months ended September 30, 2019, we amortized $6 million and $17 million of sales incentives to selling, general and administrative expense, and $4 million and $15 million of other contract acquisition costs as a reduction in revenue, respectively. During the three and nine months ended September 30, 2018, we amortized $6 million and $17 million of sales incentives to selling, general and administrative expense, and $8 million and $27 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.

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

Landfill

Remediation

Total

Landfill

Remediation

Total

Current (in accrued liabilities)