Document and Entity Information - USD ($) $ in Billions	12 Months Ended
Document and Entity Information - USD ($) $ in Billions	Dec. 31, 2019	Feb. 07, 2020	Jun. 30, 2019
Cover [Abstract]
Document Type	10-K
Document Annual Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2019
Entity File Number	1-12154
Entity Registrant Name	Waste Management, Inc
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	73-1309529
Entity Address, Address Line One	1001 Fannin Street
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77002
City Area Code	713
Local Phone Number	512-6200
Title of 12(b) Security	Common Stock
Trading Symbol	WM
Security Exchange Name	NYSE
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		424,708,758
Entity Public Float			$ 48.8
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Entity Central Index Key	0000823768
Amendment Flag	false

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 3,561	$ 61
Accounts receivable, net of allowance for doubtful accounts of $28 and $29, respectively	1,949	1,931
Other receivables	370	344
Parts and supplies	106	102
Other assets	223	207
Total current assets	6,209	2,645
Property and equipment, net of accumulated depreciation and amortization of $18,657 and $18,264, respectively	12,893	11,942
Goodwill	6,532	6,430
Other intangible assets, net	521	572
Restricted trust and escrow accounts	313	296
Investments in unconsolidated entities	483	406
Other assets	792	359
Total assets	27,743	22,650
Current liabilities:
Accounts payable	1,065	1,037
Accrued liabilities	1,327	1,117
Deferred revenues	534	522
Current portion of long-term debt	218	432
Total current liabilities	3,144	3,108
Long-term debt, less current portion	13,280	9,594
Deferred income taxes	1,407	1,291
Landfill and environmental remediation liabilities	1,930	1,828
Other liabilities	912	553
Total liabilities	20,673	16,374
Commitments and contingencies
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	5,049	4,993
Retained earnings	10,592	9,797
Accumulated other comprehensive income (loss)	(8)	(87)
Treasury stock at cost, 205,956,366 and 206,299,352 shares, respectively	(8,571)	(8,434)
Total Waste Management, Inc. stockholders' equity	7,068	6,275
Noncontrolling interests	2	1
Total equity	7,070	6,276
Total liabilities and equity	$ 27,743	$ 22,650

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts	$ 28	$ 29
Accumulated depreciation and amortization	$ 18,657	$ 18,264
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,500,000,000	1,500,000,000
Common stock, shares issued	630,282,461	630,282,461
Treasury stock, shares	205,956,366	206,299,352

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Operating revenues	$ 15,455	$ 14,914	$ 14,485
Costs and expenses:
Operating	9,496	9,249	9,021
Selling, general and administrative	1,631	1,453	1,468
Depreciation and amortization	1,574	1,477	1,376
Restructuring	6	4
(Gain) loss from divestitures, asset impairments and unusual items, net	42	(58)	(16)
Total costs and expenses	12,749	12,125	11,849
Income from operations	2,706	2,789	2,636
Other income (expense):
Interest expense, net	(411)	(374)	(363)
Loss on early extinguishment of debt	(85)		(6)
Equity in net losses of unconsolidated entities	(55)	(41)	(68)
Other, net	(50)	2	(8)
Total other income (expense)	(601)	(413)	(445)
Income before income taxes	2,105	2,376	2,191
Income tax expense	434	453	242
Consolidated net income	1,671	1,923	1,949
Less: Net income (loss) attributable to noncontrolling interests	1	(2)
Net income attributable to Waste Management, Inc.	$ 1,670	$ 1,925	$ 1,949
Basic earnings per common share	$ 3.93	$ 4.49	$ 4.44
Diluted earnings per common share	$ 3.91	$ 4.45	$ 4.41

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Consolidated net income	$ 1,671	$ 1,923	$ 1,949
Derivative instruments, net	8	8	7
Available-for-sale securities, net	15	5	2
Foreign currency translation adjustments	55	(105)	76
Post-retirement benefit obligations, net	1	2	3
Other comprehensive income (loss), net of tax	79	(90)	88
Comprehensive income	1,750	1,833	2,037
Less: Comprehensive income (loss) attributable to noncontrolling interests	1	(2)
Comprehensive income attributable to Waste Management, Inc.	$ 1,749	$ 1,835	$ 2,037

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities:
Consolidated net income	$ 1,671	$ 1,923	$ 1,949
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization	1,574	1,477	1,376
Deferred income tax expense (benefit)	100	25	(251)
Interest accretion on landfill liabilities	98	95	92
Provision for bad debts	39	54	43
Equity-based compensation expense	86	89	101
Net gain on disposal of assets	(27)	(47)	(20)
(Gain) loss from divestitures, asset impairments and other, net	113	(58)	43
Equity in net losses of unconsolidated entities, net of dividends	55	41	39
Loss on early extinguishment of debt	85		6
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Receivables	(53)	(16)	(271)
Other current assets	(23)	(16)	50
Other assets	10	(14)	(66)
Accounts payable and accrued liabilities	243	203	126
Deferred revenues and other liabilities	(97)	(186)	(37)
Net cash provided by operating activities	3,874	3,570	3,180
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired	(521)	(460)	(198)
Capital expenditures	(1,818)	(1,694)	(1,509)
Proceeds from divestitures of businesses and other assets (net of cash divested)	49	208	99
Other, net	(86)	(223)	(12)
Net cash used in investing activities	(2,376)	(2,169)	(1,620)
Cash flows from financing activities:
New borrowings	4,683	359	1,479
Debt repayments	(533)	(499)	(1,907)
Premiums paid on early extinguishment of debt	(84)		(8)
Net commercial paper borrowings (repayments)	(1,001)	453	513
Common stock repurchase program	(248)	(1,004)	(750)
Cash dividends	(876)	(802)	(750)
Exercise of common stock options	67	52	95
Tax payments associated with equity-based compensation transactions	(33)	(29)	(47)
Other, net	(11)	(38)	14
Net cash provided by (used in) financing activities	1,964	(1,508)	(1,361)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	2	(3)
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents	3,464	(110)	199
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period	183	293	94
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$ 3,647	$ 183	$ 293

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period:
Cash and cash equivalents	$ 3,561	$ 61	$ 22
Restricted cash and cash equivalents included in other current assets	15	49	70
Restricted cash and cash equivalents included in restricted trust and escrow accounts	71	73	201
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$ 3,647	$ 183	$ 293

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - USD ($) $ in Millions	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]	Noncontrolling Interests [Member]	Total
Beginning balance at Dec. 31, 2016	$ 6	$ 4,850	$ 7,388	$ (80)	$ (6,867)	$ 23	$ 5,320
Beginning balance, shares at Dec. 31, 2016	630,282				(190,967)
Equity roll forward
Consolidated net income			1,949				1,949
Other comprehensive income (loss), net of tax				88			88
Cash dividends declared			(750)				(750)
Equity-based compensation transactions, net		38	1		$ 146		185
Equity-based compensation transaction, shares					4,064
Common stock repurchase program		45			$ (795)		$ (750)
Common stock repurchase program, shares					(10,058)		(10,058,000)
Other, net, shares					(3)
Ending balance at Dec. 31, 2017	$ 6	4,933	8,588	8	$ (7,516)	23	$ 6,042
Ending balance, shares at Dec. 31, 2017	630,282				(196,964)
Equity roll forward
Consolidated net income			1,925			(2)	1,923
Other comprehensive income (loss), net of tax				(90)			(90)
Cash dividends declared			(802)				(802)
Equity-based compensation transactions, net		60	1		$ 90		151
Equity-based compensation transaction, shares					2,345
Common stock repurchase program					$ (1,008)		$ (1,008)
Common stock repurchase program, shares					(11,673)		(11,673,000)
Adoption of new accounting standards			85	(5)			$ 80
Divestiture of noncontrolling interest						(19)	(19)
Other, net						(1)	(1)
Other, net, shares					(7)
Ending balance at Dec. 31, 2018	$ 6	4,993	9,797	(87)	$ (8,434)	1	6,276
Ending balance, shares at Dec. 31, 2018	630,282				(206,299)
Equity roll forward
Consolidated net income			1,670			1	1,671
Other comprehensive income (loss), net of tax				79			79
Cash dividends declared			(876)				(876)
Equity-based compensation transactions, net		56	1		$ 107		164
Equity-based compensation transaction, shares					2,585
Common stock repurchase program					$ (244)		$ (244)
Common stock repurchase program, shares					(2,247)		(2,247,000)
Other, net, shares					5
Ending balance at Dec. 31, 2019	$ 6	$ 5,049	$ 10,592	$ (8)	$ (8,571)	$ 2	$ 7,070
Ending balance, shares at Dec. 31, 2019	630,282				(205,956)

Business

12 Months Ended

Dec. 31, 2019

Business

Business

1. Business

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 19. 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 20.

New Accounting Standards and Reclassifications

12 Months Ended

Dec. 31, 2019

New Accounting Standards and Reclassifications

New Accounting Standards and Reclassifications

2. New Accounting Standards and Reclassifications

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 or less have not been recorded on the balance sheet. 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 8 for additional information and disclosures related to our adoption of this amended guidance.

New Accounting Standards 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. This expected loss model will generally result in the earlier recognition of an allowance for losses.

For trade receivables, the Company will rely on, among other factors, historical loss trends and existing economic conditions. For other receivables as well as loans and other instruments, the Company will rely primarily on credit ratings. All receivables as well as other instruments may be adjusted for our expectation of future conditions and trends.

The amended guidance is effective for the Company on January 1, 2020 and will not have a material impact on our consolidated financial statements as current processes primarily align with the expected loss model. The cumulative effect will be recognized as an adjustment to retained earnings upon adoption. We are in the process of updating our business processes and related policies, systems and controls to support recognition and disclosure under the new standard.

Implementation Costs Incurred in a Cloud Computing Arrangement — In August 2018, the FASB issued ASU 2018-15 associated with customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post implementation stages are expensed as the activities are performed. The amended guidance is effective for the Company on January 1, 2020 and will not have a material 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.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of WM, its wholly-owned and majority-owned subsidiaries and certain variable interest entities for which we have determined that we are the primary beneficiary. All material intercompany balances and transactions have been eliminated. Investments in unconsolidated entities are accounted for under the appropriate method of accounting.

Estimates and Assumptions

In preparing our financial statements, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with precision from available data or simply cannot be calculated. In some cases, these estimates are difficult to determine, and we must exercise significant judgment. In preparing our financial statements, the most difficult, subjective and complex estimates and the assumptions that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, long-lived asset impairments and reserves associated with our insured and self-insured claims. Each

of these items is discussed in additional detail below. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Cash and Cash Equivalents

Cash in excess of current operating requirements is invested in short-term interest-bearing instruments with maturities of three months or less at the date of purchase and is stated at cost, which approximates market value.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments held within our restricted trust and escrow accounts, and accounts receivable. We make efforts to control our exposure to credit risk associated with these instruments by (i) placing our assets and other financial interests with a diverse group of credit-worthy financial institutions; (ii) holding high-quality financial instruments while limiting investments in any one instrument and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures, although generally we do not have collateral requirements for credit extensions. We also control our exposure associated with trade receivables by discontinuing service, to the extent allowable, to non-paying customers. However, our overall credit risk associated with trade receivables is limited due to the large number and diversity of customers we serve. As of December 31, 2019 and 2018, no single customer represented greater than 5% of total accounts receivable.

Accounts and Other Receivables

Our receivables, which are recorded when billed, when services are performed or when cash is advanced, are claims against third parties that will generally be settled in cash. The carrying value of our receivables, net of the allowance for doubtful accounts, represents the estimated net realizable value. We estimate our allowance for doubtful accounts based on historical collection trends; type of customer, such as municipal or commercial; the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. The activity within our allowance for doubtful accounts was not material for the reported periods. Past-due receivable balances are written off when our internal collection efforts have been unsuccessful. Also, we recognize interest income on long-term interest-bearing notes receivable as the interest accrues under the terms of the notes. We no longer accrue interest once the notes are deemed uncollectible.

Other receivables, as of December 31, 2019 and 2018, include receivables related to income tax payments in excess of our current income tax obligations of $231 million and $284 million, respectively. Other receivables as of December 31, 2019 also includes a receivable of $70 million related to federal natural gas fuel credits.

Parts and Supplies

Parts and supplies consist primarily of spare parts, fuel, tires, lubricants and processed recycling materials. Our parts and supplies are stated at the lower of cost, using the average cost method, or market.

Landfill Accounting

Cost Basis of Landfill Assets — We capitalize various costs that we incur to make a landfill ready to accept waste. These costs generally include expenditures for land (including the landfill footprint and required landfill buffer property); permitting; excavation; liner material and installation; landfill leachate collection systems; landfill gas collection systems; environmental monitoring equipment for groundwater and landfill gas; and directly related engineering, capitalized

interest, on-site road construction and other capital infrastructure costs. The cost basis of our landfill assets also includes asset retirement costs, which represent estimates of future costs associated with landfill final capping, closure and post-closure activities. These costs are discussed below.

Final Capping, Closure and Post-Closure Costs — Following is a description of our asset retirement activities and our related accounting:

●

Final Capping — Involves the installation of flexible membrane liners and geosynthetic clay liners, drainage and compacted soil layers and topsoil over areas of a landfill where total airspace has been consumed. Final capping asset retirement obligations are recorded on a units-of-consumption basis as airspace is consumed related to the specific final capping event with a corresponding increase in the landfill asset. Each final capping event is accounted for as a discrete obligation and recorded as an asset and a liability based on estimates of the discounted cash flows and airspace associated with each final capping event.

●

Closure — Includes the construction of the final portion of methane gas collection systems (when required), demobilization and routine maintenance costs. These are costs incurred after the site ceases to accept waste, but before the landfill is certified as closed by the applicable state regulatory agency. These costs are recorded as an asset retirement obligation as airspace is consumed over the life of the landfill with a corresponding increase in the landfill asset. Closure obligations are recorded over the life of the landfill based on estimates of the discounted cash flows associated with performing closure activities.

●

Post-Closure — Involves the maintenance and monitoring of a landfill site that has been certified closed by the applicable regulatory agency. Generally, we are required to maintain and monitor landfill sites for a 30-year period. These maintenance and monitoring costs are recorded as an asset retirement obligation as airspace is consumed over the life of the landfill with a corresponding increase in the landfill asset. Post-closure obligations are recorded over the life of the landfill based on estimates of the discounted cash flows associated with performing post-closure activities.

We develop our estimates of these obligations using input from our operations personnel, engineers and accountants. Our estimates are based on our interpretation of current requirements and proposed regulatory changes and are intended to approximate fair value. Absent quoted market prices, the estimate of fair value is based on the best available information, including the results of present value techniques. In many cases, we contract with third parties to fulfill our obligations for final capping, closure and post-closure. We use historical experience, professional engineering judgment and quoted or actual prices paid for similar work to determine the fair value of these obligations. We are required to recognize these obligations at market prices whether we plan to contract with third parties or perform the work ourselves. In those instances where we perform the work with internal resources, the incremental profit margin realized is recognized as a component of operating income when the work is completed.

Once we have determined final capping, closure and post-closure costs, we inflate those costs to the expected time of payment and discount those expected future costs back to present value. During the years ended December 31, 2019, 2018 and 2017, we inflated these costs in current dollars to the expected time of payment using an inflation rate of 2.5%. We discounted these costs to present value using the credit-adjusted, risk-free rate effective at the time an obligation is incurred, consistent with the expected cash flow approach. Any changes in expectations that result in an upward revision to the estimated cash flows are treated as a new liability and discounted at the current rate while downward revisions are discounted at the historical weighted average rate of the recorded obligation. As a result, the credit-adjusted, risk-free discount rate used to calculate the present value of an obligation is specific to each individual asset retirement obligation. The weighted average rate applicable to our long-term asset retirement obligations as of December 31, 2019 was approximately 5.25%.

We record the estimated fair value of final capping, closure and post-closure liabilities for our landfills based on the airspace consumed through the current period. The fair value of final capping obligations is developed based on our estimates of the airspace consumed to date for each final capping event and the expected timing of each final capping event. The fair value of closure and post-closure obligations is developed based on our estimates of the airspace consumed to date for the entire landfill and the expected timing of each closure and post-closure activity. Because these obligations are measured at estimated fair value using present value techniques, changes in the estimated cost or timing of future final capping, closure and post-closure activities could result in a material change in these liabilities, related assets and results of operations. We assess the appropriateness of the estimates used to develop our recorded balances annually, or more often if significant facts change.

Changes in inflation rates or the estimated costs, timing or extent of future final capping, closure and post-closure activities typically result in both (i) a current adjustment to the recorded liability and landfill asset and (ii) a change in liability and asset amounts to be recorded prospectively over either the remaining permitted and expansion airspace (as defined below) of the related discrete final capping event or the remaining permitted and expansion airspace of the landfill, as appropriate. Any changes related to the capitalized and future cost of the landfill assets are then recognized in accordance with our amortization policy, which would generally result in amortization expense being recognized prospectively over the remaining permitted and expansion airspace of the final capping event or the remaining permitted and expansion airspace of the landfill, as appropriate. Changes in such estimates associated with airspace that has been fully utilized result in an adjustment to the recorded liability and landfill assets with an immediate corresponding adjustment to landfill airspace amortization expense.

Interest accretion on final capping, closure and post-closure liabilities is recorded using the effective interest method and is recorded as final capping, closure and post-closure expense, which is included in operating expenses within our Consolidated Statements of Operations.

Amortization of Landfill Assets — The amortizable basis of a landfill includes (i) amounts previously expended and capitalized; (ii) capitalized landfill final capping, closure and post-closure costs; (iii) projections of future purchase and development costs required to develop the landfill site to its remaining permitted and expansion airspace and (iv) projected asset retirement costs related to landfill final capping, closure and post-closure activities.

Amortization is recorded on a units-of-consumption basis, applying expense as a rate per ton. The rate per ton is calculated by dividing each component of the amortizable basis of a landfill by the number of tons needed to fill the corresponding asset’s airspace. For landfills that we do not own, but operate through lease or other contractual agreements, the rate per ton is calculated based on expected airspace to be utilized over the lesser of the contractual term of the underlying agreement or the life of the landfill.

We apply the following guidelines in determining a landfill’s remaining permitted and expansion airspace:

●

Remaining Permitted Airspace — Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey, which is used to compare the existing landfill topography to the expected final landfill topography.

●

Expansion Airspace — We also include currently unpermitted expansion airspace in our estimate of remaining permitted and expansion airspace in certain circumstances. First, to include airspace associated with an expansion effort, we must generally expect the initial expansion permit application to be submitted within one year and the final expansion permit to be received within five years. Second, we must believe that obtaining the expansion permit is likely, considering the following criteria:

●

Personnel are actively working on the expansion of an existing landfill, including efforts to obtain land use and local, state or provincial approvals;

●

We have a legal right to use or obtain land to be included in the expansion plan;

●

There are no significant known technical, legal, community, business, or political restrictions or similar issues that could negatively affect the success of such expansion; and

●

Financial analysis has been completed based on conceptual design, and the results demonstrate that the expansion meets Company criteria for investment.

For unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, the expansion effort must meet all the criteria listed above. These criteria are evaluated by our field-based engineers, accountants, managers and others to identify potential obstacles to obtaining the permits. Once the unpermitted airspace is included, our policy provides that airspace may continue to be included in remaining permitted and expansion airspace even if certain of these criteria are no longer met as long as we continue to believe we will ultimately obtain the permit, based on the facts and circumstances of a specific landfill. In these circumstances, continued inclusion must be approved through a landfill-specific review process that includes approval by our Chief Financial Officer on a quarterly basis. Of the 15 landfill sites with expansions included as of December 31, 2019, one landfill required the Chief Financial Officer to approve the inclusion of the unpermitted airspace because the permit application process did not meet the one- or five-year requirements.

When we include the expansion airspace in our calculations of remaining permitted and expansion airspace, we also include the projected costs for development, as well as the projected asset retirement costs related to final capping, closure and post-closure of the expansion in the amortization basis of the landfill.

Once the remaining permitted and expansion airspace is determined in cubic yards, an airspace utilization factor (“AUF”) is established to calculate the remaining permitted and expansion capacity in tons. The AUF is established using the measured density obtained from previous annual surveys and is then adjusted to account for future settlement. The amount of settlement that is forecasted will take into account several site-specific factors including current and projected mix of waste type, initial and projected waste density, estimated number of years of life remaining, depth of underlying waste, anticipated access to moisture through precipitation or recirculation of landfill leachate and operating practices. In addition, the initial selection of the AUF is subject to a subsequent multi-level review by our engineering group and the AUF used is reviewed on a periodic basis and revised as necessary. Our historical experience generally indicates that the impact of settlement at a landfill is greater later in the life of the landfill when the waste placed at the landfill approaches its highest point under the permit requirements.

After determining the costs and remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates that will be expensed as waste is received and deposited at the landfill by dividing the costs by the corresponding number of tons. We calculate per ton amortization rates for each landfill for assets associated with each final capping event, for assets related to closure and post-closure activities and for all other costs capitalized or to be capitalized in the future. These rates per ton are updated annually, or more often, as significant facts change.

It is possible that actual results, including the amount of costs incurred, the timing of final capping, closure and post-closure activities, our airspace utilization or the success of our expansion efforts could ultimately turn out to be significantly different from our estimates and assumptions. To the extent that such estimates, or related assumptions, prove to be significantly different than actual results, lower profitability may be experienced due to higher amortization rates or higher expenses; or higher profitability may result if the opposite occurs. Most significantly, if it is determined that expansion capacity should no longer be considered in calculating the recoverability of a landfill asset, we may be required to recognize an asset impairment or incur significantly higher amortization expense. If at any time management makes the decision to abandon the expansion effort, the capitalized costs related to the expansion effort are expensed immediately.

Environmental Remediation Liabilities

A significant portion of our operating costs and capital expenditures could be characterized as costs of environmental protection. The nature of our operations, particularly with respect to the construction, operation and maintenance of our landfills, subjects us to an array of laws and regulations relating to the protection of the environment. Under current laws and regulations, we may have liabilities for environmental damage caused by our operations, or for damage caused by conditions that existed before we acquired a site. In addition to remediation activity required by state or local authorities, such liabilities include potentially responsible party (“PRP”) investigations. The costs associated with these liabilities can include settlements, certain legal and consultant fees, as well as incremental internal and external costs directly associated with site investigation and clean up.

Where it is probable that a liability has been incurred, we estimate costs required to remediate sites based on site-specific facts and circumstances. We routinely review and evaluate sites that require remediation, considering whether we were an owner, operator, transporter, or generator at the site, the amount and type of waste hauled to the site and the number of years we were associated with the site. Next, we review the same type of information with respect to other named and unnamed PRPs. Estimates of the costs for the likely remedy are then either developed using our internal resources or by third-party environmental engineers or other service providers. Internally developed estimates are based on:

●

Management’s judgment and experience in remediating our own and unrelated parties’ sites;

●

Information available from regulatory agencies as to costs of remediation;

●

The number, financial resources and relative degree of responsibility of other PRPs who may be liable for remediation of a specific site; and

●

The typical allocation of costs among PRPs, unless the actual allocation has been determined.

Estimating our degree of responsibility for remediation is inherently difficult. We recognize and accrue for an estimated remediation liability when we determine that such liability is both probable and reasonably estimable. Determining the method and ultimate cost of remediation requires that a number of assumptions be made. There can sometimes be a range of reasonable estimates of the costs associated with the likely site remediation alternatives identified in the environmental impact investigation. In these cases, we use the amount within the range that is our best estimate. If no amount within a range appears to be a better estimate than any other, we use the amount that is the low end of such range. If we used the high ends of such ranges, our aggregate potential liability would be approximately $140 million higher than the $240 million recorded in the Consolidated Balance Sheet as of December 31, 2019. Our ultimate responsibility may differ materially from current estimates. It is possible that technological, regulatory or enforcement developments, the results of environmental studies, the inability to identify other PRPs, the inability of other PRPs to contribute to the settlements of such liabilities, or other factors could require us to record additional liabilities. Our ongoing review of our remediation liabilities, in light of relevant internal and external facts and circumstances, could result in revisions to our accruals that could cause upward or downward adjustments to our balance sheet and income from operations. These adjustments could be material in any given period.

Where we believe that both the amount of a particular environmental remediation liability and the timing of the payments are fixed or reliably determinable, we inflate the cost in current dollars (by 2.5%as of December 31, 2019 and 2018) until the expected time of payment and discount the cost to present value using a risk-free discount rate, which is based on the rate for U.S. Treasury bonds with a term approximating the weighted average period until settlement of the underlying obligation. We determine the risk-free discount rate and the inflation rate on an annual basis unless interim changes would materially impact our results of operations. For remedial liabilities that have been discounted, we include interest accretion, based on the effective interest method, in operating expenses in our Consolidated Statements of Operations. The following table summarizes the impacts of revisions in the risk-free discount rate applied to our

environmental remediation liabilities and recovery assets for the years ended December 31 (in millions) and the risk-free discount rate applied as of December 31:


	2019			2018			2017
Increase (decrease) in operating expenses	$	9		$	(2)		$	—
Risk-free discount rate applied to environmental remediation liabilities and recovery assets		1.75	%		2.75	%		2.5	%

The portion of our recorded environmental remediation liabilities that were not subject to inflation or discounting, as the amounts and timing of payments are not fixed or reliably determinable, was $36 million and $35 million as of December 31, 2019 and 2018, respectively. Had we not inflated and discounted any portion of our environmental remediation liability, the amount recorded would have decreased by $8 million and increased by $3 million as of December 31, 2019 and 2018, respectively.

Property and Equipment (exclusive of landfills, discussed above)

We record property and equipment at cost. Expenditures for major additions and improvements are capitalized and maintenance activities are expensed as incurred. We depreciate property and equipment over the estimated useful life of the asset using the straight-line method. We assume no salvage value for our depreciable property and equipment. When property and equipment are retired, sold or otherwise disposed of, the cost and accumulated depreciation are removed from our accounts and any resulting gain or loss is included in results of operations as an offset or increase to operating expense for the period.

The estimated useful lives for significant property and equipment categories are as follows (in years):


		Useful Lives
Vehicles — excluding rail haul cars		3 to 10
Vehicles — rail haul cars		10 to 30
Machinery and equipment — including containers		3 to 30
Buildings and improvements		5 to 40
Furniture, fixtures and office equipment		3 to 10

We include capitalized costs associated with developing or obtaining internal-use software within furniture, fixtures and office equipment. These costs include direct external costs of materials and services used in developing or obtaining the software and internal costs for employees directly associated with the software development project.

Leases

We lease property and equipment in the ordinary course of our business. Our operating lease activities primarily consist of leases for real estate, landfills and operating equipment. Our financing lease activities primarily consist of leases for operating equipment, railcars and landfill assets. Our leases have varying terms. Some may include renewal or purchase options, escalation clauses, restrictions, penalties or other obligations that we consider in determining minimum lease payments. The leases are classified as either operating leases or financing leases, as appropriate. See Note 8 for additional information.

Operating Leases (excluding landfill leases discussed below) — The majority of our leases are operating leases. This classification generally can be attributed to either (i) relatively low fixed minimum lease payments as a result of real property lease obligations that vary based on the volume of waste we receive or process or (ii) minimum lease terms that are much shorter than the assets’ economic useful lives. Management expects that in the normal course of business our

operating leases will be renewed, replaced by other leases, or replaced with fixed asset expenditures. Our rent expense during each of the last three years and our future minimum operating lease payments for each of the next five years for which we are contractually obligated as of December 31, 2019 are disclosed in Note 8.

Financing Leases (excluding landfill leases discussed below) — Assets under financing leases are capitalized using interest rates determined at the commencement of each lease and are amortized over either the useful life of the asset or the lease term, as appropriate, on a straight-line basis. The present value of the related lease payments is recorded as a debt obligation. Our future minimum annual financing lease payments are disclosed in Note 8.

Landfill Leases — From an operating perspective, landfills that we lease are similar to landfills we own because generally we will operate the landfill for the life of the operating permit. The most significant portion of our rental obligations for landfill leases is contingent upon operating factors such as disposal volume and often there are no contractual minimum rental obligations. Contingent rental obligations are expensed as incurred. For landfill financing leases that provide for minimum contractual rental obligations, we record the present value of the minimum obligation as part of the landfill asset, which is amortized on a units-of-consumption basis over the shorter of the lease term or the life of the landfill. Our future minimum annual lease payments for our landfill leases are disclosed in Note 8.

Acquisitions

We generally recognize assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, based on fair value estimates as of the date of acquisition.

Contingent Consideration — In certain acquisitions, we agree to pay additional amounts to sellers contingent upon achievement by the acquired businesses of certain negotiated goals, such as targeted revenue levels, targeted disposal volumes or the issuance of permits for expanded landfill airspace. We have recognized liabilities for these contingent obligations based on their estimated fair value as of the date of acquisition with any differences between the acquisition-date fair value and the ultimate settlement of the obligations being recognized as an adjustment to income from operations.

Acquired Assets and Assumed Liabilities — Assets and liabilities arising from contingencies such as pre-acquisition environmental matters and litigation are recognized at their acquisition-date fair value when their respective fair values can be determined. If the fair values of such contingencies cannot be determined, they are recognized as of the acquisition date if the contingencies are probable and an amount can be reasonably estimated.

Acquisition-date fair value estimates are revised as necessary if, and when, additional information regarding these contingencies becomes available to further define and quantify assets acquired and liabilities assumed. Subsequent to finalization of purchase accounting, these revisions are accounted for as adjustments to income from operations. All acquisition-related transaction costs are expensed as incurred.

Goodwill and Other Intangible Assets

Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but as discussed in the Long-Lived Asset Impairments section below, we assess our goodwill for impairment at least annually.

Other intangible assets consist primarily of customer and supplier relationships, covenants not-to-compete, licenses, permits (other than landfill permits, as all landfill-related intangible assets are combined with landfill tangible assets and amortized using our landfill amortization policy), and other contracts. Other intangible assets are recorded at fair value on the acquisition date and are generally amortized using either a 150% declining balance approach or a straight-line basis as we determine appropriate. Customer and supplier relationships are typically amortized over a term of 10 years. Covenants

not-to-compete are amortized over the term of the non-compete covenant, which is generally five years. Licenses, permits and other contracts are amortized over the definitive terms of the related agreements. If the underlying agreement does not contain definitive terms and the useful life is determined to be indefinite, the asset is not amortized.

Long-Lived Asset Impairments

We assess our long-lived assets for impairment as required under the applicable accounting standards. If necessary, impairments are recorded in (gain) loss from divestitures, asset impairments and unusual items, net in our Consolidated Statement of Operations.

Property and Equipment, Including Landfills and Definite-Lived Intangible Assets — We monitor the carrying value of our long-lived assets for potential impairment on an ongoing basis and test the recoverability of such assets generally using significant unobservable (“Level 3”) inputs whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or changes in circumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value and the difference is recorded in the period that the impairment indicator occurs. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset or asset group; (ii) actual third-party valuations and/or (iii) information available regarding the current market for similar assets. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired.

The assessment of impairment indicators and the recoverability of our capitalized costs associated with landfills and related expansion projects require significant judgment due to the unique nature of the waste industry, the highly regulated permitting process and the sensitive estimates involved. During the review of a landfill expansion application, a regulator may initially deny the expansion application although the expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace, or a landfill may be required to cease accepting waste, prior to receipt of the expansion permit. However, such events occur in the ordinary course of business in the waste industry and do not necessarily result in impairment of our landfill assets because, after consideration of all facts, such events may not affect our belief that we will ultimately obtain the expansion permit. As a result, our tests of recoverability, which generally make use of a probability-weighted cash flow estimation approach, may indicate that no impairment loss should be recorded.

Indefinite-Lived Intangible Assets, Including Goodwill — At least annually using a measurement date of October 1, and more frequently if warranted, we assess the indefinite-lived intangible assets including the goodwill of our reporting units for impairment.

We first performed a qualitative assessment to determine if it was more likely than not that the fair value of a reporting unit was less than its carrying value. If the assessment indicated a possible impairment, we completed a quantitative review, comparing the estimated fair value of a reporting unit to its carrying amount, including goodwill. An impairment charge was recognized if the asset’s estimated fair value was less than its carrying amount. Fair value is typically estimated using an income approach using Level 3 inputs. However, when appropriate, we may also use a market approach. The income approach is based on the long-term projected future cash flows of the reporting units. We discount the estimated cash flows to present value using a weighted average cost of capital that considers factors such as market assumptions, the timing of the cash flows and the risks inherent in those cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting units’ expected long-term performance considering the economic and market

conditions that generally affect our business. The market approach estimates fair value by measuring the aggregate market value of publicly-traded companies with similar characteristics to our business as a multiple of their reported earnings. We then apply that multiple to the reporting units’ earnings to estimate their fair values. We believe that this approach may also be appropriate in certain circumstances because it provides a fair value estimate using valuation inputs from entities with operations and economic characteristics comparable to our reporting units.

Fair value is computed using several factors, including projected future operating results, economic projections, anticipated future cash flows, comparable marketplace data and the cost of capital. There are inherent uncertainties related to these factors and to our judgment in applying them in our analysis. However, we believe our methodology for estimating the fair value of our reporting units is reasonable.

Refer to Notes 6 and 12 for information related to impairments recognized during the reported periods.

Insured and Self-Insured Claims

We have retained a significant portion of the risks related to our health and welfare, general liability, automobile liability and workers’ compensation claims programs. The exposure for unpaid claims and associated expenses, including incurred but not reported losses, generally is estimated with the assistance of external actuaries and by factoring in pending claims and historical trends and data. The gross estimated liability associated with settling unpaid claims is included in accrued liabilities in our Consolidated Balance Sheets if expected to be settled within one year; otherwise, it is included in other long-term liabilities. Estimated insurance recoveries related to recorded liabilities are reflected as other current receivables or other long-term assets in our Consolidated Balance Sheets when we believe that the receipt of such amounts is probable.

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

Restricted Trust and Escrow Accounts

Our restricted trust and escrow accounts consist principally of funds deposited for purposes of funding insurance claims and settling landfill final capping, closure, post-closure and environmental remediation obligations. These funds are allocated between cash, money market funds and available-for-sale securities depending on the estimated timing and purpose of the use of funds. We use a wholly-owned insurance captive to insure the deductibles for certain claims programs, as discussed above in Insured and Self-Insured Claims, and the premiums paid were directly deposited into a restricted escrow account to be used solely for paying insurance claims. At several of our landfills, we provide financial assurance by depositing cash into restricted trust or escrow accounts for purposes of settling final capping, closure, post-closure and environmental remediation obligations. Balances maintained in these restricted trust and escrow accounts will fluctuate based on (i) changes in statutory requirements; (ii) future deposits made to comply with contractual arrangements; (iii) the ongoing use of funds; (iv) acquisitions or divestitures and (v) changes in the fair value of the financial instruments held in the restricted trust or escrow accounts. The current portion of restricted trust and escrow accounts as of December 31, 2019 and 2018 of $70 million is included in other current assets in our Consolidated Balance Sheets.

See Note 19 for additional discussion related to restricted trust and escrow accounts for final capping, closure, post-closure or environmental remediation obligations.

Investments in Unconsolidated Entities

Investments in unconsolidated entities over which the Company has significant influence are accounted for under the equity method of accounting. Equity investments in which the Company does not have the ability to exert significant influence over the investees’ operating and financing activities are measured using a quantitative approach as these investments do not have readily determinable fair values. The quantitative approach, or measurement alternative, is equal to its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The fair value of our redeemable preferred stock has been measured based on third-party investors’ recent or pending transactions in these securities, which are considered the best evidence of fair value. The following table summarizes our investments in unconsolidated entities as of December 31 (in millions):


	2019		2018
Equity method investments	$	377	$	257
Investments without readily determinable fair values		57		83
Redeemable preferred stock		49		66
Investments in unconsolidated entities	$	483	$	406

We monitor and assess the carrying value of our investments throughout the year for potential impairment and write them down to their fair value when other-than-temporary declines exist. Fair value is generally based on (i) other third-party investors’ recent transactions in the securities; (ii) other information available regarding the current market for similar assets; (iii) a market or income approach, as deemed appropriate and/or (iv) a quantitative approach, or measurement alternative, as noted above. Impairments of our investments are recorded in equity in net losses of unconsolidated entities or other, net in the Consolidated Statements of Operations in accordance with appropriate accounting guidance.

Refer to Notes 12 and 17 for information related to impairments and other adjustments recognized during the reported periods.

Foreign Currency

We have operations in Canada, as well as certain support functions in India. Local currencies generally are considered the functional currencies of our operations and investments outside the U.S. The assets and liabilities of our foreign operations are translated to U.S. dollars using the exchange rate as of the balance sheet date. Revenues and expenses are translated to U.S. dollars using the average exchange rate during the period. The resulting translation difference is reflected as a component of other comprehensive income (loss).

Revenue Recognition

Our Solid Waste operating revenues are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations. Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the disposal facility or material recovery facility and our disposal costs. Revenues from our landfill operations consist of tipping fees, which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, taking into account our cost of loading,

transporting and disposing of the solid waste at a disposal site. Recycling revenues generally consist of tipping fees and the sale of recycling commodities to third parties. The fees we charge for our services generally include our environmental, 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, including operations managed by both our Strategic Business Solutions (“WMSBS”) and Energy and Environmental Services (“EES”) organizations, recycling brokerage services, landfill gas-to-energy services and certain other expanded service offerings and solutions.

Our revenue from sources other than customer contracts primarily relates to lease revenue associated with compactors and balers. Revenue from our leasing arrangements was not material and represented approximately 1%of total revenue for each of the reported periods.

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.

See Note 20 for additional information related to revenue by reportable segment and major lines of business.

Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of our performance and classify them as current since they are earned within a year and there are no significant financing components. Substantially all our deferred revenues during the reported periods are realized as revenues within one to three months, when the related services are performed.

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 Consolidated Balance Sheet.

As of December 31, 2019 and 2018, we had $153 million and $145 million of deferred contract costs, respectively, of which $117 million and $109 million was related to deferred sales incentives, respectively. During the years ended December 31, 2019 and 2018, we amortized $23 million and $22 million of sales incentives to selling, general and administrative expense, respectively, and $17 million and $35 million of other contract acquisition costs as a reduction in revenue, respectively.

Long-Term Contracts

Approximately 25% of our total revenue is derived from contracts with a remaining term greater than one year. The consideration for these contracts is primarily variable in nature. The variable elements of these contracts primarily include the number of homes and businesses served and annual rate changes based on consumer price index, fuel prices or other operating costs. Such contracts are generally within our collection, recycling and other lines of business and have a weighted average remaining contract life of approximately five years. We do not disclose the value of unsatisfied performance obligations for these contracts as our right to consideration corresponds directly to the value provided to the

customer for services completed to date and all future variable consideration is allocated to wholly unsatisfied performance obligations.

Capitalized Interest

We capitalize interest on certain projects under development, including landfill expansion projects, certain assets under construction, including operating landfills and landfill gas-to-energy projects and internal-use software. During 2019, 2018 and 2017, total interest costs were $485 million, $400 million and $383 million, respectively, of which $21 million, $16 million and $15 million was capitalized in 2019, 2018 and 2017, respectively.

Income Taxes

The Company is subject to income tax in the U.S. and Canada. Current tax obligations associated with our income tax expense are reflected in the accompanying Consolidated Balance Sheets as a component of accrued liabilities and our deferred tax obligations are reflected in deferred income taxes.

Deferred income taxes are based on the difference between the financial reporting and tax basis of assets and liabilities. Deferred income tax expense represents the change during the reporting period in the deferred tax assets and liabilities, net of the effect of acquisitions and dispositions. Deferred tax assets include tax loss and credit carry-forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. We establish reserves for uncertain tax positions when, despite our belief that our tax return positions are supportable, we believe that certain positions may be challenged and potentially disallowed. When facts and circumstances change, we adjust these reserves through our income tax expense.

Should interest and penalties be assessed by taxing authorities on any underpayment of income tax, such amounts would be accrued and classified as a component of our income tax expense in our Consolidated Statements of Operations.

See Note 9 for discussion of our income taxes.

Contingent Liabilities

We estimate the amount of potential exposure we may have with respect to claims, assessments and litigation in accordance with authoritative guidance on accounting for contingencies. We are party to pending or threatened legal proceedings covering a wide range of matters in various jurisdictions. It is difficult to predict the outcome of litigation, as it is subject to many uncertainties. Additionally, it is not always possible for management to make a meaningful estimate of the potential loss or range of loss associated with such contingencies. See Note 11 for discussion of our commitments and contingencies.

Supplemental Cash Flow Information

The following table shows supplemental cash flow information for the years ended December 31 (in millions):


	2019		2018		2017
Interest, net of capitalized interest	$	397	$	339	$	380
Income taxes		292		349		562

During 2019, we had $299 million of non-cash financing activities from our recent federal low-income housing investment discussed in Note 9 and new financing leases. During 2018, we had $250 million of non-cash financing activities from a federal low-income housing investment and new financing leases. During 2017, we did not have any

significant non-cash investing and financing activities. Non-cash investing and financing activities are generally excluded from the Consolidated Statements of Cash Flows.

Landfill and Environmental Remediation Liabilities

12 Months Ended

Dec. 31, 2019

Landfill and Environmental Remediation Liabilities

Landfill and Environmental Remediation Liabilities

4. Landfill and Environmental Remediation Liabilities

Liabilities for landfill and environmental remediation costs as of December 31 are presented in the table below (in millions):


	2019						2018
			Environmental						Environmental
	Landfill		Remediation		Total		Landfill		Remediation		Total
Current (in accrued liabilities)	$	138	$	27	$	165	$	143	$	26	$	169
Long-term		1,717		213		1,930		1,617		211		1,828
	$	1,855	$	240	$	2,095	$	1,760	$	237	$	1,997

The changes to landfill and environmental remediation liabilities for the year ended December 31, 2019 are reflected in the table below (in millions):


			Environmental
	Landfill		Remediation
December 31, 2018	$	1,760	$	237
Obligations incurred and capitalized		72		—
Obligations settled		(113)		(22)
Interest accretion		98		4
Revisions in estimates and interest rate assumptions (a) (b)		33		21
Acquisitions, divestitures and other adjustments		5		—
December 31, 2019	$	1,855	$	240

(a)	The amount reported for our landfill liabilities includes revisions in estimates resulting primarily from changes in the timing and amount of costs as well as changes in estimates of remaining airspace.

(b)	The amount reported for our environmental remediation liabilities includes an increase of $11 million due to a decrease in the risk-free discount rate used to measure our liabilities from 2.75% at December 31, 2018 to 1.75% at December 31, 2019.

Our recorded liabilities as of December 31, 2019 include the impacts of inflating certain of these costs based on our expectations of the timing of cash settlement and of discounting certain of these costs to present value. Anticipated payments of currently identified environmental remediation liabilities, as measured in current dollars, are $27 million in 2020, $33 million in 2021, $44 million in 2022, $34 million in 2023, $22 million in 2024 and $72 million thereafter.

At several of our landfills, we provide financial assurance by depositing cash into restricted trust funds or escrow accounts for purposes of settling final capping, closure, post-closure and environmental remediation obligations. Generally, these trust funds are established to comply with statutory requirements and operating agreements. See Notes 17 and 19 for additional information related to these trusts.

Property and Equipment

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment

5. Property and Equipment

Property and equipment as of December 31 consisted of the following (in millions):


	2019		2018
Land	$	656	$	656
Landfills		15,910		15,240
Vehicles		5,344		5,059
Machinery and equipment		3,140		2,988
Containers		2,616		2,588
Buildings and improvements		3,174		2,998
Furniture, fixtures and office equipment		710		677
		31,550		30,206
Less: Accumulated depreciation of tangible property and equipment		(9,331)		(9,107)
Less: Accumulated amortization of landfill airspace		(9,326)		(9,157)
Property and equipment, net	$	12,893	$	11,942

Depreciation and amortization expense, including amortization expense for assets recorded as financing leases, consisted of the following for the years ended December 31 (in millions):


	2019		2018		2017
Depreciation of tangible property and equipment	$	893	$	838	$	783
Amortization of landfill airspace		575		538		497
Depreciation and amortization expense	$	1,468	$	1,376	$	1,280

Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

6. Goodwill and Other Intangible Assets

Goodwill was $6,532 million and $6,430 million as of December 31, 2019 and 2018, respectively. The $102 million increase in goodwill during 2019 is primarily related to acquisitions partially offset by impairment charges, which are discussed below, and translation adjustments related to our Canadian operations.

As discussed in Note 3, we perform our annual impairment test of goodwill balances for our reporting units using a measurement date of October 1. We will also perform interim tests if an impairment indicator exists. As a result of our annual impairment test performed in the fourth quarter of 2019, we recorded goodwill impairment charges of $27 million, of which $17 million related to our EES organization and $10 million related to our LampTracker^® reporting unit, because the carrying value including goodwill exceeded the estimated fair value. Fair value was estimated using an income approach based on long-term projected discounted future cash flows of the reporting unit (Level 3).

See Notes 12, 18 and 20 for additional information related to goodwill.

Our other intangible assets consisted of the following as of December 31 (in millions):


	Customer		Covenants		Licenses,
	and Supplier		Not-to-		Permits
	Relationships		Compete		and Other		Total
2019
Intangible assets	$	906	$	72	$	110	$	1,088
Less: Accumulated amortization		(469)		(36)		(62)		(567)
	$	437	$	36	$	48	$	521
2018
Intangible assets	$	949	$	60	$	109	$	1,118
Less: Accumulated amortization		(461)		(24)		(61)		(546)
	$	488	$	36	$	48	$	572

Amortization expense for other intangible assets was $106 million, $101 million and $96 million for 2019, 2018 and 2017, respectively. As of December 31, 2019, we had $19 million of licenses, permits and other intangible assets that are not subject to amortization because they do not have stated expirations or have routine, administrative renewal processes. Additional information related to other intangible assets acquired through business combinations is included in Note 18. As of December 31, 2019, we expect annual amortization expense related to other intangible assets to be $99 million in 2020, $85 million in 2021, $70 million in 2022, $61 million in 2023 and $56 million in 2024.

Debt

12 Months Ended

Dec. 31, 2019

Debt

Debt

7. Debt

The following table summarizes the major components of debt as of each balance sheet date (in millions) and provides the maturities and interest rate ranges of each major category as of December 31:


	2019		2018
Revolving credit facility (weighted average interest rate of 3.1% as of December 31, 2018)	$	—	$	11
Commercial paper program (weighted average interest rate of 2.9% as of December 31, 2018)		—		990
Senior notes, maturing through 2049, interest rates ranging from 2.4% to 7.75% (weighted average interest rate of 3.9% as of December 31, 2019 and 4.3% as of December 31, 2018)		9,965		6,222
Canadian senior notes, maturing September 2026, interest rate of 2.6%		385		—
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 1.35% to 4.3% (weighted average interest rate of 2.3% as of December 31, 2019 and 2.35% as of December 31, 2018)		2,523		2,388
Financing leases and other, maturing through 2071, weighted average interest rate of 4.7%		710		467
Debt issuance costs, discounts and other		(85)		(52)
		13,498		10,026
Current portion of long-term debt		218		432
	$	13,280	$	9,594

Debt Classification

As of December 31, 2019, we had $1.5 billion of debt maturing within the next 12 months, including (i) $600 million of 4.75% senior notes that mature in June 2020; (ii) $669 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities, and (iii) $218 million of other debt with scheduled maturities within the next 12 months, including $112 million of tax-exempt bonds. As of December 31, 2019,

we have classified $1.3 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S. and Canadian revolving credit facility (“$3.5 billion revolving credit facility”), as discussed below. The remaining $218 million of debt maturing in the next 12 months is classified as current obligations.

As of December 31, 2019, we also have $169 million of variable-rate tax-exempt bonds that are supported by letters of credit under our $3.5 billion revolving credit facility, of which $15 million mature within the next 12 months. The interest rates on our variable-rate tax-exempt bonds are generally reset on either a daily or weekly basis through a remarketing process. All recent tax-exempt bond remarketings have successfully placed Company bonds with investors at market-driven rates and we currently expect future remarketings to be successful. However, if the remarketing agent is unable to remarket our bonds, the remarketing agent can put the bonds to us. In the event of a failed remarketing, we have the availability under our $3.5 billion revolving credit facility to fund these bonds until they are remarketed successfully. Accordingly, we have classified $154 million of these borrowings as long-term in our Consolidated Balance Sheet as of December 31, 2019.

Access to and Utilization of Credit Facilities and Commercial Paper Program

$3.5 Billion Revolving Credit Facility — In November 2019, we entered into the $3.5 billion revolving credit facility, which amended and restated our prior long-term U.S. and Canadian revolving credit facility. Amendments to the credit agreement included (i) increasing total capacity under the facility from $2.75 billion to $3.5 billion; (ii) increasing the accordion feature that may be used to increase total capacity in future periods from $750 million to $1.0 billion and (iii) extending the term through November 2024. The agreement provides the Company with two one-year extension options. Waste Management of Canada Corporation and WM Quebec Inc., each an indirect wholly-owned subsidiary of WM, are borrowers under the $3.5 billion revolving credit facility, and the agreement permits borrowing in Canadian dollars up to the U.S. dollar equivalent of $375 million, with such borrowings to be repaid in Canadian dollars. WM Holdings, a wholly-owned subsidiary of WM, guarantees all the obligations under the $3.5 billion revolving credit facility.

The $3.5 billion revolving credit facility provides us with credit capacity to be used for cash borrowings, to support letters of credit or to support our commercial paper program. The rates we pay for outstanding U.S. or Canadian loans are generally based on LIBOR or CDOR, respectively, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR or CDOR ranges from 0.575% to 1.015%. Our $3.5 billion revolving credit facility was drafted in anticipation of the phaseout of LIBOR and contains provisions to replace LIBOR with an appropriate alternate benchmark rate as needed. As of December 31, 2019, we had no outstanding borrowings and $412 million of letters of credit issued and supported by the facility, leaving unused and available credit capacity of $3.1 billion.

Commercial Paper Program — We have a commercial paper program that enables us to borrow funds for up to 397 days at competitive interest rates. The rates we pay for outstanding borrowings are based on the term of the notes. The commercial paper program is fully supported by our $3.5 billion revolving credit facility. In November 2019, we amended our commercial paper program, increasing our ability to borrow funds from $2.75 billion to $3.5 billion, provided that the aggregate outstanding amount of commercial paper borrowings, together with borrowings and issued letters of credit under the $3.5 billion revolving credit facility, shall not at any time exceed the aggregate authorized borrowing capacity of such facility. As of December 31, 2019, we had no outstanding borrowings under our commercial paper program.

Other Letter of Credit Facilities — As of December 31, 2019, we had utilized $532 million of other letter of credit facilities, which are both committed and uncommitted, with terms maturing through April 2021.

Debt Borrowings and Repayments

Revolving Credit Facility — In 2019, we repaid C$15 million, or $11 million, of Canadian borrowings under our revolving credit facility with available cash.

Senior Notes — In May 2019, WM issued $4.0 billion of senior notes consisting of:

●

$750 million of 2.95% senior notes due June 15, 2024;

●

$750 million of 3.20% senior notes due June 15, 2026;

●

$1.0 billion of 3.45% senior notes due June 15, 2029;

●

$500 million of 4.00% senior notes due July 15, 2039; and

●

$1.0 billion of 4.15% senior notes due July 15, 2049.

The net proceeds from these debt issuances were $3.97 billion. Concurrently, we used $344 million of the net proceeds from the newly issued senior notes to retire $257 million of certain high-coupon senior notes. The cash paid includes the principal amount of the debt retired, $84 million of related premiums, which are classified as loss on early extinguishment of debt in our Consolidated Statement of Operations, and $3 million of accrued interest. The principal amount of senior notes redeemed within each series was as follows:

●

$304 million of WM Holdings 7.10% senior notes due 2026, of which $56 million were tendered;

●

$395 million of WM 7.00% senior notes due 2028, of which $64 million were tendered;

●

$139 million of WM 7.375% senior notes due 2029, of which $58 million were tendered;

●

$210 million of WM 7.75% senior notes due 2032, of which $57 million were tendered; and

●

$274 million of WM 6.125% senior notes due 2039, of which $22 million were tendered.

We used a portion of the proceeds to repay our commercial paper borrowings as discussed further below. We intend to use the remaining net proceeds to pay a portion of the consideration related to our pending acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) which is discussed further in Note 18, and for general corporate purposes. The newly-issued senior notes due 2024, 2026, 2029 and 2039 include a special mandatory redemption feature, which provides that if the acquisition of Advanced Disposal is not completed on or prior to July 14, 2020, or if, prior to such date, the Merger Agreement is terminated for any reason, we will be required to redeem all of such outstanding notes equal to 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest.

Canadian Senior Notes — In September 2019, Waste Management of Canada Corporation, an indirect wholly-owned subsidiary of WM, issued C$500 million, or $377 million, of 2.6% senior notes due September 23, 2026, all of which are fully and unconditionally guaranteed on a senior unsecured basis by WM and WM Holdings. The net proceeds from the debt issuance were C$496 million, or $373 million, which we intend to use for general corporate purposes.

Commercial Paper Program — During the year ended December 31, 2019, we made net cash repayments of $1.0 billion (net of the related discount on issuance).

Tax-Exempt Bonds — We issued $240 million of new tax-exempt bonds in 2019. The proceeds from the issuance of these bonds were deposited directly into a restricted trust fund and may only be used for the specific purpose for which the money was raised, which is generally to finance expenditures for landfill and solid waste disposal facility construction and development. In the third quarter of 2019, we elected to refund and reissue $99 million of tax-exempt bonds which resulted in the recognition of a $1 million loss on early extinguishment of debt in our Consolidated Statement of Operations. Additionally, during the year ended December 31, 2019, we repaid $105 million of our tax-exempt bonds with available cash.

Financing Leases and Other — The increase in our financing leases and other debt obligations during 2019 is primarily related to (i) our new federal low-income housing investment discussed in Note 9, which increased our debt obligations by $140 million, and (ii) an increase of $159 million attributable to non-cash financing arrangements. These increases were offset by a net decrease of $56 million, primarily due net cash repayments of debt at maturity.

Scheduled Debt Payments

Principal payments of our debt for the next five years and thereafter, based on scheduled maturities are as follows: $823 million in 2020, $629 million in 2021, $660 million in 2022, $646 million in 2023, $1,220 million in 2024 and $9,701 million thereafter. Our recorded debt and financing lease obligations include non-cash adjustments associated with debt issuance costs, discounts, premiums and fair value adjustments attributable to terminated interest rate derivatives, which have been excluded from these amounts because they will not result in cash payments. See Note 8 below for further discussion of our financing lease arrangements.

Secured Debt

Our debt balances are generally unsecured, except for financing leases and the notes payable associated with our investments in low-income housing properties.

Debt Covenants

The terms of certain of our financing arrangements require that we comply with financial and other covenants. Our most restrictive financial covenant is the one contained in our $3.5 billion revolving credit facility, which sets forth a maximum total debt to consolidated earnings before interest, taxes, depreciation and amortization ratio (the “Leverage Ratio”). This covenant requires that the Leverage Ratio for the preceding four fiscal quarters will not be more than 3.75 to 1, provided that if an acquisition permitted under the $3.5 billion revolving credit facility involving aggregate consideration in excess of $200 million occurs during the fiscal quarter, the Company shall have the right to increase the Leverage Ratio to 4.25 to 1 during such fiscal quarter and for the following three fiscal quarters (the “Elevated Leverage Ratio Period”). There shall be no more than two Elevated Leverage Ratio Periods during the term of the $3.5 billion revolving credit facility, and the Leverage Ratio must return to 3.75 to 1 for at least one fiscal quarter between Elevated Leverage Ratio Periods. The calculation of all components used in the Leverage Ratio covenant are as defined in the $3.5 billion revolving credit facility.

Our $3.5 billion revolving credit facility, senior notes and other financing arrangements also contain certain restrictions on the ability of the Company’s subsidiaries to incur additional indebtedness as well as restrictions on the ability of the Company and its subsidiaries to, among other things, incur liens; engage in sale-leaseback transactions and engage in mergers and consolidations. We monitor our compliance with these restrictions, but do not believe that they significantly impact our ability to enter into investing or financing arrangements typical for our business. As of December 31, 2019 and 2018, we were in compliance with all covenants and restrictions under our financing arrangements that may have a material effect on our Consolidated Financial Statements.

Leases

12 Months Ended

Dec. 31, 2019

Leases

Leases

8. Leases

Our operating lease activities primarily consist of leases for real estate, landfills and operating equipment. Our financing lease activities primarily consist of leases for operating equipment, railcars and landfill assets. Leases with an initial term of 12 months or less, 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. Most leases include one or more options to renew, with renewal terms generally ranging from one to 10 years. The exercise of lease renewal options is at our sole discretion. We include the renewal term in the calculation of the right-of-use asset and related lease liability when

such renewals are reasonably certain of being exercised. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments based on usage and other lease agreements include rental payments adjusted periodically for inflation; these payments are treated as variable lease payments. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

When the implicit interest rate is not readily available for our leases, we discount future cash flows of the remaining lease payments using the current interest rate that would be paid to borrow on collateralized debt over a similar term, or incremental borrowing rate, at the commencement date.

Supplemental balance sheet information for our leases is as follows (in millions):


Leases	Classification	December 31, 2019
Assets
Long-term:
Operating	Other assets	$	424
Financing	Property and equipment, net of accumulated depreciation and amortization		374
Total lease assets		$	798

Liabilities
Current:
Operating	Accrued liabilities	$	79
Financing	Current portion of long-term debt		36
Long-term:
Operating	Other liabilities		366
Financing	Long-term debt, less current portion		323
Total lease liabilities		$	804

Operating lease expense was $132 million, $129 million and $134 million during 2019, 2018 and 2017, respectively, and is included in operating and selling, general and administrative expenses in our Consolidated Statement of Operations. Financing lease expense for 2019 was $48 million and is included in depreciation and amortization expense and interest expense, net in our Consolidated Statement of Operations.

Minimum contractual obligations for our leases (undiscounted) as of December 31, 2019 are as follows (in millions):


		Operating		Financing
2020	$	63	$	47
2021		58		45
2022		57		45
2023		51		44
2024		40		41
Thereafter		359		256
Total lease payments	$	628	$	478
Less: interest		(183)		(119)
Discounted lease liabilities	$	445	$	359

As of December 31, 2019, we entered into leases, primarily for real estate, that have not yet commenced with future lease payments of $26 million that are not reflected in the table above. These leases will commence through 2020 with non-cancelable lease terms up to 15 years.

Cash paid during 2019 for our operating and financing leases was $87 million and $40 million, respectively. During 2019, right-of-use assets obtained in exchange for lease obligations for our operating and financing leases were $149 million and $134 million, respectively.

As of December 31, 2019, the weighted average remaining lease terms of our operating and financing leases were approximately 16 years and 14 years, respectively. The weighted average discount rates used to determine the lease liabilities as of December 31, 2019 for our operating and financing leases were approximately 3.50% and 4.10%, respectively.

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

9. Income Taxes

Income Tax Expense

Our income tax expense consisted of the following for the years ended December 31 (in millions):


	2019		2018		2017
Current:
Federal	$	204	$	256	$	400
State		94		132		56
Foreign		36		40		37
		334		428		493
Deferred:
Federal		94		59		(316)
State		8		(32)		62
Foreign		(2)		(2)		3
		100		25		(251)
Income tax expense	$	434	$	453	$	242

The U.S. federal statutory income tax rate is reconciled to the effective income tax rate for the years ended December 31 as follows:


	2019		2018		2017
Income tax expense at U.S. federal statutory rate	21.00	%	21.00	%	35.00	%
State and local income taxes, net of federal income tax benefit	4.39		4.41		3.25
Impacts of enactment of tax reform	—		(0.51)		(24.14)
Federal tax credits	(4.38)		(2.44)		(2.31)
Taxing authority audit settlements and other tax adjustments	(0.74)		(3.85)		0.03
Tax impact of equity-based compensation transactions	(0.91)		(0.54)		(1.45)
Tax impact of impairments	0.72		0.03		0.66
Tax rate differential on foreign income	0.40		0.43		(0.55)
Other	0.13		0.51		0.55
Effective income tax rate	20.61	%	19.04	%	11.04	%

The comparability of our income tax expense for the reported periods has been primarily affected by (i) variations in our income before income taxes; (ii) federal tax credits; (iii) excess tax benefits associated with equity-based compensation transactions (iv) adjustments to our accruals and deferred taxes; (v) the tax implications of impairments; (vi) the realization of state net operating losses and credits; (vii) tax audit settlements and (viii) the impacts of enactment of tax reform.

For financial reporting purposes, income before income taxes by source for the years ended December 31 was as follows (in millions):


	2019		2018		2017
Domestic	$	2,025	$	2,235	$	2,040
Foreign (a)		80		141		151
Income before income taxes	$	2,105	$	2,376	$	2,191

(a)	Foreign income before income taxes for the year ended December 31, 2019 includes a $52 million impairment charge related to our minority-owned investment in a waste conversion technology business. See Note 12 for further discussion.

Investments Qualifying for Federal Tax Credits — We have significant financial interests in entities established to invest in and manage low-income housing properties and a refined coal facility. On August 28, 2019 we acquired an additional noncontrolling interest in a limited liability company established to invest in and manage low-income housing properties. Our consideration for this investment totaled $160 million, which was comprised of a $140 million note payable and an initial cash payment of $20 million. We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments and the coal facility’s refinement processes qualify for federal tax credits that we expect to realize through 2030 under Section 42, through 2024 under Section 45D, and through 2019 under Section 45 of the Internal Revenue Code.

We account for our investments in these entities using the equity method of accounting, recognizing our share of each entity’s pre-tax results of operations and other reductions in the value of our investments in equity in net losses of unconsolidated entities, within our Consolidated Statements of Operations. During the years ended December 31, 2019, 2018 and 2017, we recognized $46 million, $30 million and $30 million of net losses and a reduction in our income tax expense of $96 million, $57 million and $51 million, respectively, primarily due to tax credits realized from these investments. In addition, during the years ended December 31, 2019, 2018 and 2017, we recognized interest expense of $9 million, $3 million and $2 million, respectively, associated with our investments in low-income housing properties. See Note 19 for additional information related to these unconsolidated variable interest entities.

Other Federal Tax Credits — During 2019, 2018 and 2017, we recognized federal tax credits in addition to the tax credits realized from our investments in low-income housing properties and the refined coal facility, resulting in a reduction in our income tax expense of $11 million, $10 million and $13 million, respectively.

Equity-Based Compensation — During 2019, 2018 and 2017, we recognized excess tax benefits related to the vesting or exercise of equity-based compensation awards resulting in a reduction in our income tax expense of $25 million, $17 million and $37 million, respectively.

Adjustments to Accruals and Deferred Taxes — Adjustments to our accruals and deferred taxes due to the filing of our income tax returns, analysis of our deferred tax balances and changes in state and foreign laws resulted in a reduction in our income tax expense of $22 million, $52 million and $5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Tax Implications of Impairments — Portions of the impairment charges recognized during the reported periods are not deductible for tax purposes resulting in an increase in income tax expense of $15 million, $1 million and $15 million for the years ended December 31, 2019, 2018 and 2017, respectively. See Note 12 for more information related to our impairment charges.

State Net Operating Losses and Credits — During 2019, 2018 and 2017, we recognized state net operating losses and credits resulting in a reduction in our income tax expense of $14 million, $22 million and $12 million, respectively.

Tax Audit Settlements — We file income tax returns in the U.S. and Canada, as well as other state and local jurisdictions. We are currently under audit by various taxing authorities, as discussed below, and our audits are in various stages of completion. During the reported periods, we settled various tax audits which resulted in a reduction in our income tax expense of $2 million, $40 million and $2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

We participate in the IRS’s Compliance Assurance Process, which means we work with the IRS throughout the year towards resolving any material issues prior to the filing of our annual tax return. Any unresolved issues as of the tax return filing date are subject to routine examination procedures. We are currently in the examination phase of IRS audits for the 2017 through 2019 tax years and expect these audits to be completed within the next 15 months. We are also currently undergoing audits by various state and local jurisdictions for tax years that date back to 2013.

Enactment of Tax Reform – In accordance with applicable accounting guidance, the Company recognized the provisional tax impacts and subsequent measurement period adjustments related to the remeasurement of our deferred income tax assets and liabilities and the one-time, mandatory transition tax on deemed repatriation of previously tax-deferred and unremitted foreign earnings, resulting in a reduction in our income tax expense of $12 million and $529 million for the years ended December 31, 2018 and 2017, respectively.

Unremitted Earnings in Foreign Subsidiaries — No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time, mandatory transition tax, or any additional outside basis difference, as these amounts continue to be indefinitely reinvested in foreign operations.

Deferred Tax Assets (Liabilities)

The components of net deferred tax liabilities as of December 31 are as follows (in millions):


	2019		2018
Deferred tax assets:
Net operating loss, capital loss and tax credit carry-forwards	$	150	$	258
Landfill and environmental remediation liabilities		156		143
Operating lease liabilities		114		—
Miscellaneous and other reserves, net		150		175
Subtotal		570		576
Valuation allowance		(162)		(261)
Deferred tax liabilities:
Property and equipment		(842)		(752)
Goodwill and other intangibles		(865)		(854)
Operating lease right-of-use assets		(108)		—
Net deferred tax liabilities	$	(1,407)	$	(1,291)

The valuation allowance decreased by $99 million in 2019 primarily due to the utilization and expiration of federal capital loss carry-forwards.

As of December 31, 2019, we had $1.8 billion of state net operating loss carry-forwards with expiration dates through 2039. We also had $27 million of federal capital loss carry-forwards with expiration dates through 2024, $32 million of foreign tax credit carry-forwards with expiration dates through 2029 and $17 million of state tax credit carry-forwards with expiration dates through 2035.

We have established valuation allowances for uncertainties in realizing the benefit of certain tax loss and credit carry-forwards and other deferred tax assets. While we expect to realize the deferred tax assets, net of the valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.

Liabilities for Uncertain Tax Positions

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including accrued interest, is as follows (in millions):


	2019		2018		2017
Balance as of January 1	$	36	$	109	$	82
Additions based on tax positions related to the current year		5		6		19
Additions based on tax positions of prior years		—		12		11
Accrued interest		2		2		4
Settlements		—

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Cash dividends declared per common share	$ 2.05	$ 1.86	$ 1.70