UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended | |
or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | |
Commission file number | |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | ||
Non-accelerated filer ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding as of April 22, 2024 was
PART I.
Item 1. Financial Statements.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Par Value Amounts)
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance for doubtful accounts of $ |
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Other receivables, net of allowance for doubtful accounts of $ |
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Parts and supplies |
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Other assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation and depletion of $ |
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Goodwill |
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Other intangible assets, net |
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Restricted funds |
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Investments in unconsolidated entities |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND EQUITY | ||||||
Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued liabilities |
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Deferred revenues |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, less current portion |
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Deferred income taxes |
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Landfill and environmental remediation liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 6) |
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Equity: |
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Waste Management, Inc. stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive (loss) income |
| ( |
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Treasury stock at cost |
| ( |
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Total Waste Management, Inc. stockholders’ equity |
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Noncontrolling interests |
| ( |
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Total equity |
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Total liabilities and equity | $ | | $ | | ||
See Notes to Condensed Consolidated Financial Statements.
2
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except per Share Amounts)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
| 2024 |
| 2023 | |||
Operating revenues | $ | | $ | | ||
Costs and expenses: |
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Operating |
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Selling, general and administrative |
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Depreciation, depletion and amortization |
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Restructuring | — | | ||||
(Gain) loss from divestitures, asset impairments and unusual items, net |
| ( |
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Income from operations |
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Other income (expense): |
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Interest expense, net |
| ( |
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Equity in net losses of unconsolidated entities |
| ( |
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Other, net |
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| ( |
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Income before income taxes |
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Income tax expense |
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Consolidated net income |
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Less: Net income (loss) attributable to noncontrolling interests |
| ( |
| ( | ||
Net income attributable to Waste Management, Inc. | $ | | $ | | ||
Basic earnings per common share | $ | | $ | | ||
Diluted earnings per common share | $ | | $ | | ||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
Three Months Ended | |||||
March 31, | |||||
2024 |
| 2023 | |||
Consolidated net income | $ | | $ | | |
Other comprehensive income (loss), net of tax: |
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Derivative instruments, net |
| — |
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Available-for-sale securities, net |
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Foreign currency translation adjustments |
| ( |
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Post-retirement benefit obligations, net |
| — |
| — | |
Other comprehensive income (loss), net of tax |
| ( |
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Comprehensive income |
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Less: Comprehensive income (loss) attributable to noncontrolling interests |
| ( |
| ( | |
Comprehensive income attributable to Waste Management, Inc. | $ | | $ | | |
See Notes to Condensed Consolidated Financial Statements.
3
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Three Months Ended | ||||||
March 31, | ||||||
| 2024 |
| 2023 | |||
Cash flows from operating activities: |
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Consolidated net income |
| $ | | $ | | |
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
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Deferred income tax expense (benefit) |
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Interest accretion on landfill and environmental remediation liabilities |
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Provision for bad debts |
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Equity-based compensation expense |
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Net gain on disposal of assets |
| ( |
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(Gain) loss from divestitures, asset impairments and other, net |
| ( |
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Equity in net losses of unconsolidated entities, net of dividends |
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Change in operating assets and liabilities, net of effects of acquisitions and divestitures: |
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Receivables |
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Other current assets |
| ( |
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Other assets |
| ( |
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Accounts payable and accrued liabilities |
| ( |
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Deferred revenues and other liabilities |
| ( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Acquisitions of businesses, net of cash acquired |
| ( |
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Capital expenditures |
| ( |
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Proceeds from divestitures of businesses and other assets, net of cash divested |
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Other, net |
| ( |
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Net cash used in investing activities |
| ( |
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Cash flows from financing activities: |
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New borrowings |
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Debt repayments |
| ( |
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Common stock repurchase program |
| ( |
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Cash dividends |
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Exercise of common stock options |
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Tax payments associated with equity-based compensation transactions |
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Other, net |
| ( |
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Net cash used in financing activities |
| ( |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents |
| ( |
| — | ||
(Decrease) increase in cash, cash equivalents and restricted cash and cash equivalents |
| ( |
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Cash, cash equivalents and restricted cash and cash equivalents at beginning of period |
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Cash, cash equivalents and restricted cash and cash equivalents at end of period |
| $ | | $ | | |
Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period: | ||||||
Cash and cash equivalents | $ | | $ | | ||
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Cash, cash equivalents and restricted cash and cash equivalents at end of period |
| $ | | $ | | |
See Notes to Condensed Consolidated Financial Statements.
4
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In Millions, Except Shares in Thousands)
(Unaudited)
Waste Management, Inc. Stockholders’ Equity | |||||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||||
Additional | Other | ||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Noncontrolling | ||||||||||||||||||||
| Total |
| Shares |
| Amounts |
| Capital |
| Earnings |
| (Loss) Income |
| Shares |
| Amounts |
| Interests | ||||||||
2024 | |||||||||||||||||||||||||
Balance, December 31, 2023 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | ( | ||||||||
Consolidated net income |
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Other comprehensive income (loss), net of tax |
| ( | — |
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| ( |
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| — | ||||||||
Cash dividends declared of $ |
| ( | — |
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Equity-based compensation transactions, net |
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| ( |
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Common stock repurchase program |
| ( | — |
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Other, net |
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Balance, March 31, 2024 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | ( | ||||||||
2023 | |||||||||||||||||||||||||
Balance, December 31, 2022 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
Consolidated net income |
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| — |
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Other comprehensive income (loss), net of tax |
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Cash dividends declared of $ |
| ( | — |
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Equity-based compensation transactions, net |
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Common stock repurchase program |
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Other, net |
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Balance, March 31, 2023 | $ | | | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | ||||||||
See Notes to Condensed Consolidated Financial Statements.
5
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial statements presented in this report represent the consolidation of Waste Management, Inc., a Delaware corporation; its wholly-owned and majority-owned subsidiaries; and certain variable interest entities for which Waste Management, Inc. or its subsidiaries are the primary beneficiaries as described in Note 11. 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., together with its consolidated subsidiaries and consolidated variable interest entities. When we use the term “WMI,” we are referring only to Waste Management, Inc., the parent holding company.
We are North America’s leading provider of comprehensive environmental solutions, providing services throughout the United States (“U.S.”) and Canada. We partner with our customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. Our 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 including Waste Management Renewable Energy (“WM Renewable Energy”) business, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and renewable natural gas (“RNG”), which is a significant source of fuel that we allocate to our natural gas fleet.
Our senior management evaluates, oversees and manages the financial performance of our business through
The Condensed Consolidated Financial Statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 are unaudited. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows, and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
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, intangible asset impairments and the fair value of assets and liabilities acquired in business combinations. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
Revenue Recognition
We generally recognize revenue as services are performed or products are delivered. For example, revenue typically is recognized as waste is collected, tons are received at our landfills or transfer stations, or recycling and other commodities,
6
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
such as RNG, electricity and capacity, Renewable Identification Numbers (“RINs”) and Renewable Energy Credits (“RECs”), are sold.
We also bill for certain services prior to performance. Such services include, among others, certain commercial and residential contracts, and equipment rentals. These advanced billings are included in deferred revenues and recognized as revenue in the period service is provided. Substantially all our deferred revenues during the reported periods are realized as revenues within to
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 to
Leases
Amounts for our operating lease right-of-use assets are recorded in long-term other assets and the current and long-term portion of our operating lease liabilities are reflected in accrued liabilities and other long-term liabilities, respectively, in our Condensed Consolidated Balance Sheets. Amounts for our financing leases are recorded in property and equipment, net of accumulated depreciation and depletion, and current or long-term debt in our Condensed Consolidated Balance Sheets, as appropriate.
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 restricted funds, 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.
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.
7
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Landfill and Environmental Remediation Liabilities
Liabilities for landfill and environmental remediation costs are presented in the table below (in millions):
March 31, 2024 | December 31, 2023 | |||||||||||||||||
Environmental | Environmental | |||||||||||||||||
| Landfill |
| Remediation |
| Total |
| Landfill |
| Remediation |
| Total | |||||||
| $ | | $ | | $ | | $ | | $ | | $ | | ||||||
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| $ | | $ | | $ | | $ | | $ | | $ | | ||||||
The changes to landfill and environmental remediation liabilities for the three months ended March 31, 2024 are reflected in the table below (in millions):
Environmental | ||||||
| Landfill |
| Remediation | |||
December 31, 2023 | $ | | $ | | ||
Obligations incurred and capitalized |
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Obligations settled |
| ( |
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Interest accretion |
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Revisions in estimates |
| ( |
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Acquisitions, divestitures and other adjustments |
| ( |
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March 31, 2024 | $ | | $ | | ||
At several of our landfills, we provide financial assurance by depositing cash into restricted trust funds 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 Note 11 for additional information related to these trusts.
8
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. Debt
The following table summarizes the major components of debt at principal amounts as of each balance sheet date (in millions) and provides the maturities and interest rate ranges of each major category as of March 31, 2024:
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Commercial paper program (weighted average interest rate of | $ | | $ | | ||
Senior notes, maturing through 2050, interest rates ranging from | | | ||||
Canadian senior notes, C$ |
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Tax-exempt bonds, maturing through 2053, fixed and variable interest rates ranging from |
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Financing leases and other, maturing through 2082 (weighted average interest rate of |
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Debt issuance costs, discounts and other |
| ( |
| ( | ||
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Current portion of long-term debt |
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Long-term debt, less current portion | $ | | $ | | ||
| (a) | Excluding our landfill financing leases, the maturities of our financing leases and other debt obligations extend through 2059. |
Debt Classification
As of March 31, 2024, we had approximately $
Access to and Utilization of Credit Facilities and Commercial Paper Program
$3.5 Billion Revolving Credit Facility — Our $3.5 billion revolving credit facility, maturing May 2027, provides us with credit capacity to be used for cash borrowings, to support letters of credit and to support our commercial paper program. The interest rates we pay on outstanding U.S. or Canadian loans are based on the Secured Overnight Financing Rate (“SOFR”) administered by the Federal Reserve Bank of New York or the Canadian Dollar Offered Rate (“CDOR”), respectively, plus a spread depending on WMI’s senior public debt rating assigned by Moody’s Investors Service, Inc. and Standard and Poor’s Global Ratings. As of March 31, 2024, we had
9
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Commercial Paper Program — We have a commercial paper program that enables us to borrow funds for up to
Other Letter of Credit Lines — As of March 31, 2024, we had utilized $
Debt Borrowings and Repayments
Commercial Paper Program — During the three months ended March 31, 2024, we made cash repayments of $
Financing Leases and Other — The decrease in our financing leases and other debt obligations during the three months ended March 31, 2024 is due to $
4. Income Taxes
Our effective income tax rate was
Investments Qualifying for Federal Tax Credits
Renewable Natural Gas — Through our subsidiaries including our WM Renewable Energy segment, we have invested in building landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and RNG. We expect our new RNG facilities to qualify for federal tax credits and to realize those credits through 2027 under Sections 48 and 45Z of the Internal Revenue Code.
During the three months ended March 31, 2024 and 2023, we recognized a reduction in our income tax expense of $
Low-Income Housing — We have significant financial interests in entities established to invest in and manage low-income housing properties. 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 qualify for federal tax credits that we expect to realize through 2033 under Section 42 or Section 45D 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 results of operations and other reductions in the value of our investments in equity in net losses of unconsolidated entities, within our Condensed Consolidated Statements of Operations.
During the three months ended March 31, 2024 and 2023, we recognized $
10
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Equity-Based Compensation — During the three months ended March 31, 2024 and 2023, we recognized a reduction in our income tax expense of $
5. Earnings Per Share
Basic and diluted earnings per share for the three months ended March 31 were computed using the following common share data (shares in millions):
| 2024 |
| 2023 | |
Number of common shares outstanding at end of period |
| |
| |
Effect of using weighted average common shares outstanding |
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Weighted average basic common shares outstanding |
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Dilutive effect of equity-based compensation awards and other contingently issuable shares |
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Weighted average diluted common shares outstanding |
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Potentially issuable shares |
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Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding |
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Refer to the Condensed Consolidated Statements of Operations for net income attributable to Waste Management, Inc.
6. Commitments and Contingencies
Financial Instruments — We have obtained letters of credit, surety bonds and insurance policies and have established trust funds and issued financial guarantees to support tax-exempt bonds, contracts, performance of landfill final capping, closure and post-closure requirements, environmental remediation and other obligations. Letters of credit generally are supported by our $
Management does not expect that any claims against or draws on these instruments would have a material adverse effect on our financial condition, results of operations or cash flows. We have not experienced any unmanageable difficulty in obtaining the required financial assurance instruments for our current operations. In an ongoing effort to mitigate risks of future cost increases and reductions in available capacity, we continue to evaluate various options to access cost-effective sources of financial assurance.
Insurance — We carry insurance coverage for protection of our assets and operations from certain risks including general liability, automobile liability, workers’ compensation, real and personal property, directors’ and officers’ liability, pollution legal liability, cyber incident liability and other coverages we believe are customary to the industry. Our exposure to loss for insurance claims is generally limited to the per-incident deductible under the related insurance policy and any amounts that exceed our insured limits. Our exposure could increase if our insurers are unable to meet their commitments on a timely basis.
We have retained a significant portion of the risks related to our health and welfare, general liability, automobile liability and workers’ compensation claims programs. “General liability” refers to the self-insured portion of specific third-party claims made against us that may be covered under our commercial general liability insurance policy. For our self-insured portions, the exposure for unpaid claims and associated expenses, including incurred but not reported losses, is based on an actuarial valuation or internal estimates. The accruals for these liabilities could be revised if future
11
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
occurrences or loss development significantly differ from such valuations and estimates. We use a wholly-owned insurance captive to insure the deductibles for our general liability, automobile liability and workers’ compensation claims programs.
We do not expect the impact of any known casualty, property, environmental or other contingency to have a material impact on our financial condition, results of operations or cash flows.
Guarantees — In the ordinary course of our business, WMI and WM Holdings enter into guarantee agreements associated with their subsidiaries’ operations. Additionally, WMI and WM Holdings have each guaranteed all of the senior debt of the other entity. No additional liabilities have been recorded for these intercompany guarantees because all of the underlying obligations are reflected in our Condensed Consolidated Balance Sheets.
As of March 31, 2024, we have guaranteed the obligations and certain performance requirements of third parties in connection with both consolidated and unconsolidated entities, including guarantees to cover the difference, if any, between the sale value and the guaranteed market or contractually-determined value of certain homeowner’s properties that are adjacent to or near
Environmental Matters — 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.
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 (where estimable), our aggregate potential liability would be approximately $
As of March 31, 2024, we had been notified by the government that we are a PRP in connection with
12
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
other
The majority of proceedings involving NPL sites that we do not own are based on allegations that certain of our subsidiaries (or their predecessors) transported hazardous substances to the sites, often prior to our acquisition of these subsidiaries. CERCLA generally provides for liability for those parties owning, operating, transporting to or disposing at the sites. Proceedings arising under Superfund typically involve numerous waste generators and other waste transportation and disposal companies and seek to allocate or recover costs associated with site investigation and remediation, which costs could be substantial and could have a material adverse effect on our consolidated financial statements. At some of the sites at which we have been identified as a PRP, our liability is well defined as a consequence of a governmental decision and an agreement among liable parties as to the share each will pay for implementing that remedy. At other sites, where no remedy has been selected or the liable parties have been unable to agree on an appropriate allocation, our future costs are uncertain.
In 2018, both of McGinnes Industrial Maintenance Corporation (“MIMC”), a subsidiary of Waste Management of Texas, Inc., and International Paper Company (“IPC”) entered into an Administrative Order on Consent with the EPA as PRPs to develop a remedial design for the San Jacinto River Waste Pits Superfund Site in Harris County, Texas. We recorded a liability for MIMC’s estimated potential share of the EPA’s proposed remedy and related costs, although allocation of responsibility among the PRPs for the proposed remedy has not been established. MIMC and IPC have continued to work on a remedial design to support the EPA’s proposed remedy; however, in the first quarter of 2024, the EPA publicly issued a letter alleging that the remedial design has serious deficiencies. MIMC and IPC have engaged with the EPA and provided responses to the EPA letter. Due to increases in the estimated cost of the remedy, we recorded an additional $
Item 103 of the SEC’s Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings, or such proceedings are known to be contemplated, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, below a stated threshold. In accordance with this SEC regulation, the Company uses a threshold of $1 million for purposes of determining whether disclosure of any such environmental proceedings is required. As of the date of this filing, we are not aware of any matters that are required to be disclosed pursuant to this standard.
From time to time, we are also named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of having owned, operated or transported waste to a disposal facility that is alleged to have contaminated the environment or, in certain cases, on the basis of having conducted environmental remediation activities at sites. Some of the lawsuits may seek to have us pay the costs of monitoring of allegedly affected sites and health care examinations of allegedly affected persons for a substantial period of time even where no actual damage is proven. While we believe we have meritorious defenses to these lawsuits, the ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the individual plaintiffs’ circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other factors. Additionally, we often enter into agreements with landowners imposing obligations on us to meet certain regulatory or contractual conditions upon site closure or upon termination of the agreements. Compliance with these agreements inherently involves subjective determinations and may result in disputes, including litigation.
Litigation — We are subject to various proceedings, lawsuits, disputes and claims arising in the ordinary course of our business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions that have been filed against us, and that may be filed against us in the future, include personal injury, property damage,
13
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
commercial, customer, and employment-related claims, including purported state and national class action lawsuits related to: alleged environmental contamination, including releases of hazardous material and odors; sales and marketing practices, customer service agreements and prices and fees; and federal and state wage and hour and other laws. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. These actions are in various procedural stages, and some are covered, in part, by insurance. We currently do not believe that the eventual outcome of any such actions will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
In June 2022, we and certain of our officers were named as defendants in a complaint alleging violation of the federal securities laws and seeking certification as a class action in the U.S. District Court for the Southern District of New York. A lead plaintiff has been appointed and an amended complaint was filed in January 2023. The amended complaint seeks damages on behalf of a putative class of secondary market purchasers of our senior notes with a special mandatory redemption feature issued in May 2019, asserting claims under the Securities Exchange Act based on alleged misrepresentations and omissions concerning the time for completion of our acquisition of Advanced Disposal. On March 27, 2024, the Court denied our motion to dismiss except as to one of our officers, and the case will proceed to discovery. We intend to vigorously defend against this pending suit. We believe any potential recovery by the plaintiffs, in excess of applicable deductibles, will be covered by insurance, and we do not believe that the eventual outcome of this suit will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
WMI’s charter and bylaws provide that WMI shall indemnify against all liabilities and expenses, and upon request shall advance expenses to any person, who is subject to a pending or threatened proceeding because such person is or was a director or officer of the Company. Such indemnification is required to the maximum extent permitted under Delaware law. Accordingly, the director or officer must execute an undertaking to reimburse the Company for any fees advanced if it is later determined that the director or officer was not permitted to have such fees advanced under Delaware law. Additionally, the Company has direct contractual obligations to provide indemnification to each of the members of WMI’s Board of Directors and each of WMI’s executive officers. The Company may incur substantial expenses in connection with the fulfillment of its advancement of costs and indemnification obligations in connection with actions or proceedings that may be brought against its former or current officers, directors and employees.
Multiemployer Defined Benefit Pension Plans — About
We do not believe that any future liability relating to our past or current participation in, or withdrawals from, the Multiemployer Pension Plans to which we contribute will have a material adverse effect on our business, financial condition or liquidity. However, liability for future withdrawals could have a material adverse effect on our results of operations or cash flows for a particular reporting period, depending on the number of employees withdrawn and the financial condition of the Multiemployer Pension Plan(s) at the time of such withdrawal(s).
Tax Matters — We maintain a liability for uncertain tax positions, the balance of which management believes is adequate. Results of audit assessments by taxing authorities are not currently expected to have a material adverse effect on our financial condition, results of operations or cash flows. 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
14
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
annual tax return. Any unresolved issues as of the tax return filing date are subject to routine examination procedures. In the fourth quarter of 2022, the Company received a notice of tax due for the 2017 tax year related to a remaining disagreement with the IRS. In response to the notice, the Company made a deposit of approximately $103 million with the IRS. The Company expects to seek a refund of the entire amount deposited with the IRS and litigate any denial of the claim for refund. As of March 31, 2024 and December 31, 2023, the IRS deposit, net of reserve for uncertain tax positions, is classified as a component of other long-term assets in the Company’s Condensed Consolidated Balance Sheets.
7. Segment and Related Information
Our senior management evaluates, oversees and manages the financial performance of our business through
15
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Summarized financial information concerning our reportable segments for the three months ended March 31 is shown in the following table (in millions):
Gross | Intercompany | Net | Income | |||||||||
Operating | Operating | Operating | from | |||||||||
| Revenues |
| Revenues(a) |
| Revenues |
| Operations(b) | |||||
2024 |
|
|
|
|
|
|
|
| ||||
Collection and Disposal: |
|
|
|
|
|
|
|
| ||||
East Tier | $ | | $ | ( | $ | | $ | | ||||
West Tier | | ( | | | ||||||||
Other Ancillary |
| |
| ( |
| |
| ( | ||||
Collection and Disposal |
| |
| ( |
| |
| | ||||
Recycling Processing and Sales |
| |
| ( |
| |
| | ||||
WM Renewable Energy | | ( | | | ||||||||
Corporate and Other |
| |
| ( |
| |
| ( | ||||
Total | $ | | $ | ( | $ | | $ | | ||||
2023 |
|
|
|
|
|
|
|
| ||||
Collection and Disposal: |
|
|
|
|
|
|
|
| ||||
East Tier | $ | | $ | ( | $ | | $ | | ||||
West Tier | | ( | | | ||||||||
Other Ancillary |
| |
| ( |
| |
| | ||||
Collection and Disposal |
| |
| ( |
| |
| | ||||
Recycling Processing and Sales |
| |
| ( |
| |
| | ||||
WM Renewable Energy |
| | ( | | | |||||||
Corporate and Other |
| |
| ( |
| |
| ( | ||||
Total | $ | | $ | ( | $ | | $ | | ||||
| (a) | Intercompany operating revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service. |
| (b) | For those items included in the determination of income from operations, the accounting policies of the segments are the same as those described in Note 1. |
16
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The mix of operating revenues from our major lines of business for the three months ended March 31 are as follows (in millions):
Gross | Intercompany | Net | ||||||||
| Operating | Operating | Operating | |||||||
Revenues |
| Revenues |
| Revenues |
| |||||
2024 |
| |||||||||
Commercial |
| $ | | $ | ( | $ | | |||
Industrial |
| | ( |
| | |||||
Residential | | ( | | |||||||
Other collection |
| |
| ( |
| | ||||
Total collection |
| |
| ( |
| | ||||
Landfill | | ( | | |||||||
Transfer | | ( | | |||||||
Total Collection and Disposal |
| |
| ( |
| | ||||
Recycling Processing and Sales |
| |
| ( |
| | ||||
WM Renewable Energy |
| |
| ( |
| | ||||
Corporate and Other | | ( | | |||||||
Total | $ | | $ | ( | $ | | ||||
2023 | ||||||||||
Commercial |
| $ | | $ | ( | $ | | |||
Industrial |
| | ( |
| | |||||
Residential | | ( | | |||||||
Other collection |
| |
| ( |
| | ||||
Total collection |
| |
| ( |
| | ||||
Landfill | | ( | | |||||||
Transfer | | ( | | |||||||
Total Collection and Disposal |
| |
| ( |
| | ||||
Recycling Processing and Sales |
| |
| ( |
| | ||||
WM Renewable Energy |
| |
| ( |
| | ||||
Corporate and Other | | ( | | |||||||
Total | $ | | $ | ( | $ | | ||||
Our financial and operating results may fluctuate for many reasons, including period-to-period changes in the relative contribution of revenue by each line of business, changes in commodity prices and general economic conditions. Our operating revenues and volumes typically experience seasonal increases in the summer months that are reflected in second and third quarter revenues and results of operations.
Service or operational disruptions caused by severe storms, extended periods of inclement weather or climate events can significantly affect the operating results of the geographic areas affected. Extreme weather events may also lead to supply chain disruption and delayed project development, or disruption of our customers’ businesses, reducing the amount of waste generated by their operations.
Conversely, certain destructive weather and climate conditions, such as wildfires in the Western U.S. and hurricanes that most often impact our operations in the Southern and Eastern U.S. during the second half of the year, can increase our revenues in the geographic areas affected as a result of the waste volumes generated by these events. While weather-related and other event-driven special projects can boost revenues through additional work for a limited time, due to significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.
17
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. Accumulated Other Comprehensive (Loss) Income
The changes in the balances of each component of accumulated other comprehensive (loss) income, net of tax, which is included as a component of Waste Management, Inc. stockholders’ equity, are as follows (in millions, with amounts in parentheses representing decreases to accumulated other comprehensive income):
Foreign | Post- | ||||||||||||||
Available- | Currency | Retirement | |||||||||||||
Derivative | for-Sale | Translation | Benefit | ||||||||||||
| Instruments |
| Securities |
| Adjustments |
| Obligations |
| Total | ||||||
Balance, December 31, 2023 | $ | | $ | | $ | ( | $ | | $ | ( | |||||
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $ |
| — |
| — |
| ( |
| — |
| ( | |||||
Amounts reclassified from accumulated other comprehensive (income) loss, net of tax (expense) benefit of $ |
| — |
| |
| — |
| — |
| | |||||
Net current period other comprehensive income (loss) |
| — |
| |
| ( |
| — |
| ( | |||||
Balance, March 31, 2024 | $ | | $ | | $ | ( | $ | | $ | ( | |||||
9. Common Stock Repurchase Program
The Company repurchases shares of its common stock as part of capital allocation programs authorized by our Board of Directors.
In February 2024, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $
As of March 31, 2024, the Company has authorization for $
10. Fair Value Measurements
Assets and Liabilities Accounted for at Fair Value
Our assets and liabilities that are measured at fair value on a recurring basis include the following (in millions):
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Quoted prices in active markets (Level 1): | ||||||
Cash equivalents and money market funds |
| $ | |
| $ | |
Equity securities | | | ||||
Significant other observable inputs (Level 2): | ||||||
Available-for-sale securities (a) |
| |
| | ||
Total Assets |
| $ | | $ | | |
| (a) | Our available-for-sale securities primarily relate to debt securities with maturities over the next |
18
WASTE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value of Debt
As of March 31, 2024 and December 31, 2023, the carrying value of our debt was $
Although we have determined the estimated fair value amounts using available market information and commonly accepted valuation methodologies, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The use of different assumptions or estimation methodologies could have a material effect on the estimated fair values. The fair value estimates are based on Level 2 inputs of the fair value hierarchy available as of March 31, 2024 and December 31, 2023. These amounts have not been revalued since those dates, and current estimates of fair value could differ significantly from the amounts presented.
11. Variable Interest Entities
The following is a description of our financial interests in unconsolidated and consolidated variable interest entities that we consider significant:
Low-Income Housing Properties
We do not consolidate our investments in entities established to manage low-income housing properties because we are not the primary beneficiary of these entities as we do not have the power to individually direct the activities of these entities. Accordingly, we account for these investments under the equity method of accounting. Our aggregate investment balance in these entities was $
Trust Funds for Final Capping, Closure, Post-Closure or Environmental Remediation Obligations
Unconsolidated Variable Interest Entities — Trust funds that are established for both the benefit of the Company and the host community in which we operate are not consolidated because we are not the primary beneficiary of these entities as (i) we do not have the power to direct the significant activities of the trusts or (ii) power over the trusts’ significant activities is shared. Our interests in these trusts are accounted for as investments in unconsolidated entities and receivables. These amounts are recorded in other receivables, investments in unconsolidated entities and long-term other assets in our Condensed Consolidated Balance Sheets, as appropriate. We also reflect our share of the unrealized gains and losses on available-for-sale securities held by these trusts as a component of our accumulated other comprehensive income (loss). Our investments and receivables related to these trusts had an aggregate carrying value of $
Consolidated Variable Interest Entities — Trust funds for which we are the sole beneficiary are consolidated because we are the primary beneficiary. These trust funds are recorded in restricted funds in our Condensed Consolidated Balance Sheets. Unrealized gains and losses on available-for-sale securities held by these trusts are recorded as a component of accumulated other comprehensive income (loss). These trusts had a fair value of $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included under Item 1 and our Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023.
This Quarterly Report on Form 10-Q contains certain forward-looking statements that are made subject to the safe harbor protections provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by the words, “will,” “may,” “should,” “continue,” “anticipate,” “believe,” “expect,” “plan,” “forecast,” “project,” “estimate,” “intend,” and words of a similar nature and include estimates or projections of financial and other data; comments on expectations relating to future periods; plans or objectives for the future; and statements of opinion, view or belief about current and future events, circumstances or performance. You should view these statements with caution. They are based on the facts and circumstances known to us as of the date the statements are made. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to failure to implement our optimization, automation, growth, and cost savings initiatives and overall business strategy; failure to obtain the results anticipated from strategic initiatives, investments, acquisitions or new lines of business; failure to identify acquisition targets, consummate and integrate acquisitions; environmental and other regulations, including developments related to emerging contaminants, gas emissions, renewable energy, extended producer responsibility and our natural gas fleet; significant environmental, safety or other incidents resulting in liabilities or brand damage; failure to obtain and maintain necessary permits due to land scarcity, public opposition or otherwise; diminishing landfill capacity, resulting in increased costs and the need for disposal alternatives; failure to attract, hire and retain key team members and a high quality workforce; increases in labor costs due to union organizing activities or changes in wage and labor related regulations; disruption and costs resulting from severe weather and destructive climate events; failure to achieve our sustainability goals or execute on our sustainability-related strategy and initiatives, including within planned timelines or anticipated budgets due to disruptions, delays, cost increases or changes in environmental or tax regulations; focus on, and regulation of, environmental and sustainability-related disclosures, which could lead to increased costs, risk of non-compliance, brand damage and litigation risk related to our sustainability efforts; macroeconomic conditions, geopolitical conflict and large-scale market disruption resulting in labor, supply chain and transportation constraints, inflationary cost pressures and fluctuations in commodity prices, fuel and other energy costs; increased competition; pricing actions; impacts from international trade restrictions; competitive disposal alternatives, diversion of waste from landfills and declining waste volumes; weakness in general economic conditions and capital markets, including potential for an economic recession; instability of financial institutions; adoption of new tax legislation; fuel shortages; failure to develop and protect new technology; failure of technology to perform as expected; failure to prevent, detect and address cybersecurity incidents or comply with privacy regulations; inability to adapt and manage the benefits and risks of artificial intelligence; negative outcomes of litigation or governmental proceedings; and decisions or developments that result in impairment charges and other risks discussed in our filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. We assume no obligation to update any forward-looking statement, including financial estimates and forecasts, whether as a result of future events, circumstances or developments or otherwise.
Overview
We are North America’s leading provider of comprehensive environmental solutions, providing services throughout the United States (“U.S.”) and Canada. We partner with our customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. We own or operate the largest network of landfills throughout the U.S. and Canada. In order to make disposal more practical for larger urban markets, where the distance to landfills is typically farther, we manage transfer stations that consolidate, compact and transport waste efficiently and economically. Our business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provide collection, transfer, disposal, recycling and resource recovery services. Through our subsidiaries, including our Waste Management Renewable Energy (“WM Renewable Energy”) business, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and renewable natural gas (“RNG”), which is a significant source of fuel that
20
we allocate to our natural gas fleet. Additionally, we are a leading recycler in the U.S. and Canada, handling materials that include paper, cardboard, glass, plastic and metal.
Our senior management evaluates, oversees and manages the financial performance of our business through four reportable segments, referred to as (i) Collection and Disposal - East Tier (“East Tier”); (ii) Collection and Disposal - West Tier (“West Tier”); (iii) Recycling Processing and Sales and (iv) WM Renewable Energy. Our East and West Tiers, along with certain ancillary services (“Other Ancillary”) not managed through our Tier segments, but that support our collection and disposal operations, form our “Collection and Disposal” businesses.
Strategy
Our fundamental strategy has not changed; we remain dedicated to providing long-term value to our stockholders by successfully executing our core strategy of focused differentiation and continuous improvement. We have enabled a people-first, technology-led focus to drive our mission to maximize resource value, while minimizing environmental impact, and sustainability and environmental stewardship is embedded in all that we do. Our strategy leverages and sustains the strongest asset network in the industry to drive best-in-class customer experience and growth. Our strategic planning processes appropriately consider that the future of our business and the industry can be influenced by changes in economic conditions, the competitive landscape, the regulatory environment, asset and resource availability and technology. We believe that focused differentiation, which is driven by capitalizing on our unique and extensive network of assets, will deliver profitable growth and position us to leverage competitive advantages. Simultaneously, we believe that investing in automation to improve processes and drive operational efficiency combined with a focus on the cost to serve our customer will yield an attractive profit margin and enhanced service quality. We are furthering our strategy of focused differentiation and continuous improvement beyond our traditional waste operations through our sustainability growth strategy that includes significant planned investments in our WM Renewable Energy and Recycling Processing and Sales segments, while increasing automation and reducing labor dependency. We are also evaluating and pursuing emerging diversion technologies that may generate additional value.
Business Environment
The waste industry is a comparatively mature and stable industry. However, customers increasingly expect more of their waste materials to be recovered and those waste streams are becoming more complex. In addition, many state and local governments mandate diversion, recycling and waste reduction at the source and prohibit the disposal of certain types of waste at landfills. We monitor these developments to adapt our service offerings. As companies, individuals and communities look for ways to be more sustainable, we promote our comprehensive services that go beyond our core business of collecting and disposing of waste in order to meet their needs. This includes expanding traditional recycling services, increasing organics collection and processing, and expanding our renewable energy projects to meet the evolving needs of our diverse customer base. As North America’s leading provider of comprehensive environmental solutions, we are taking big, bold steps to catalyze positive change – change that will impact our Company as well as the communities we serve. Consistent with our Company’s long-standing commitment to sustainability and environmental stewardship, we have published our 2023 Sustainability Report providing details on our sustainability-related performance and outlining progress towards our 2030 sustainability goals. The Sustainability Report conveys the strong linkage between the Company’s sustainability goals and our growth strategy, inclusive of the planned and ongoing expansion of the Company’s Recycling Processing and Sales and WM Renewable Energy segments. The information in this report can be found at https://sustainability.wm.com but it does not constitute a part of, and is not incorporated by reference into, this Quarterly Report on Form 10-Q.
We encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, and to a much lesser extent, the nature of service offerings, particularly in the residential line of business. Our industry is directly affected by changes in general economic factors, including increases and decreases in consumer spending, business expansions and construction activity. These factors generally correlate to volumes of waste generated and impact our revenue. Negative economic conditions and other macroeconomic trends can and have caused customers to reduce their service needs. Such negative economic conditions, in addition to competitor actions, can impact our strategy to negotiate, renew, or expand service contracts and grow our business. We also encounter competition for acquisitions
21
and growth opportunities. General economic factors and the market for consumer goods, in addition to regulatory developments, can also significantly impact commodity prices for the recyclable materials we sell. Significant components of our operating expenses vary directly as we experience changes in revenue due to volume and inflation. Volume changes can fluctuate significantly by line of business and volume changes in higher margin businesses can impact key financial metrics. We must dynamically manage our cost structure in response to volume changes and cost inflation.
We believe the Company’s industry-leading asset network and strategic focus on investing in our people and our digital platform will give the Company the necessary tools to address the evolving challenges impacting the Company and our industry. In line with our commitment to continuous improvement and a differentiated customer experience, we remain focused on our automation and optimization investments to enhance our operational efficiency and change the way we interact with our customers. Advancements made through these initiatives are intended to seamlessly and digitally connect all enterprise functions required to service customers and provide the best experience.
Macroeconomic pressures continue, including sustained inflationary pressures and high interest rates, with geopolitical events causing further market disruptions. Inflation moderately improved from the high levels observed during the first half of 2023; however, inflation remained above typical levels during the first quarter of 2024. While supply chain activity has begun to normalize, risks persist related to higher operating costs, ongoing supply shortages, labor and transportation challenges and impacts from global events.
We continue to experience margin pressures from our commodity-driven businesses, specifically within our Recycling Processing and Sales and WM Renewable Energy segments. While still below prices seen at the beginning of 2022, recycling commodity prices began to improve in the fourth quarter of 2023 and continued to improve in the first quarter of 2024. While there may be short term fluctuations in our commodity-driven businesses as prices change, we continue to take proactive steps to adjust our business models to protect against the down-side risk of changes in commodity prices.
The extent and duration of the impact of labor, supply chain, transportation and commodity price challenges are subject to numerous external factors beyond our control, including broader macroeconomic conditions; recessionary fears and/or an economic recession; size, location, and qualifications of the labor pool; wage and price structures; adoption of new or revised regulations; geopolitical conflicts and responses and supply and demand for commodities. As we experience inflationary cost pressures, we focus on our pricing efforts, as well as operating efficiencies and cost controls, to maintain our earnings and cash flow and facilitate growth. With these macroeconomic pressures, we remain committed to putting our people first to ensure that they are well positioned to execute our daily operations diligently and safely. We remain focused on delivering outstanding customer service, managing our variable costs with changing volumes and investing in technology that will enhance our customers’ experience and provide operating efficiencies intended to reduce our cost to serve.
Current Quarter Financial Results
During the first quarter of 2024, we continued to focus on our priorities to advance our strategy—enhancing employee engagement, permanently reducing our cost to serve through the use of technology and automation, and investing in growth through our Recycling Processing and Sales and WM Renewable Energy segments. This strategic focus, combined with strong operational execution resulted in increased revenue, income from operations and income from operations margin. We remain diligent in offering a competitively profitable service that meets the needs of our customers, and we are focused on driving operating efficiencies and reducing discretionary spend. We continue to invest in our people through paying a competitive market wage, investments in our digital platform and training for our team members. We also continue to make investments in automation and optimization to enhance our operational efficiency and improve labor productivity for all lines of business. During the first quarter of 2024, we allocated $668 million of available cash to capital expenditures and $557 million to our shareholders through dividends and common stock repurchases.
Key elements of our financial results for the first quarter include:
| ● | Revenues of $5,159 million, compared with $4,892 million in the prior year period, an increase of $267 million, or 5.5%. The increase is primarily attributable to higher yield in our Collection and Disposal businesses and |
22
| Recycling Processing and Sales segment, partially offset by, (i) decreased revenue from our energy surcharge program due to a decline in the price of fuel, particularly diesel, and (ii) lower industrial and residential collection volumes; |
| ● | Operating expenses of $3,140 million, or 60.9% of revenues, compared with $3,086 million, or 63.1% of revenues, in the prior year period. The $54 million increase is primarily attributable to (i) commodity-driven business impacts from higher recycling rebates; (ii) an increase in volumes in our Strategic Business Solutions (“WMSBS”) business and (iii) inflationary pressures. These increases were offset in part by (i) lower fuel prices and (ii) improved operating efficiency, reduced repair and maintenance costs due to improved truck deliveries and cost control; |
| ● | Selling, general and administrative expenses were $491 million, or 9.5% of revenues, compared with $476 million, or 9.7% of revenues, in the prior year period. The $15 million increase is primarily attributable to (i) increased labor costs from higher annual incentive compensation costs and annual wage increases and (ii) increased technology spend; |
| ● | Income from operations was $1,016 million, or 19.7% of revenues, compared with $825 million, or 16.9% of revenues, in the prior year period. The increase in the current year earnings was primarily driven by revenue growth in our Collection and Disposal businesses partially offset by higher annual incentive compensation; |
| ● | Net income attributable to Waste Management, Inc. was $708 million, or $1.75 per diluted share, compared with $533 million, or $1.30 per diluted share, in the prior year period. The primary drivers of the increase in net income are the increase in income from operations, discussed above and, to a lesser extent, a reduction in income tax expense of $37 million, or $0.09 per diluted share, associated with federal tax credits expected to be realized from our RNG investments. These increases were partially offset by higher interest expense and an increase in net losses of our unconsolidated entities. |
| ● | Net cash provided by operating activities was $1,367 million compared with $1,044 million in the prior year period, with the increase driven by (i) higher earnings in our Collection and Disposal businesses and Recycling Processing and Sales segment, (ii) favorable changes in working capital, net of effects of acquisitions and divestitures, and (iii) lower incentive compensation payments. This increase was partially offset by higher cash interest payments; and |
| ● | Free cash flow was $714 million compared with $395 million in the prior year period. The increase in free cash flow is attributable to the increase in net cash provided by operating activities discussed above. Free cash flow is a non-GAAP measure of liquidity. Refer to Free Cash Flow below for our definition of free cash flow, additional information about our use of this measure, and a reconciliation to net cash provided by operating activities, which is the most comparable GAAP measure. |
23
Results of Operations
Operating Revenues
The mix of operating revenues for the three months ended March 31 are as follows (in millions):
Gross | Intercompany | Net | ||||||||
| Operating | Operating | Operating | |||||||
Revenues |
| Revenues (a) |
| Revenues |
| |||||
2024 |
| |||||||||
Commercial |
| $ | 1,501 | $ | (185) | $ | 1,316 | |||
Industrial |
| 934 | (187) |
| 747 | |||||
Residential | 876 | (22) | 854 | |||||||
Other collection |
| 751 |
| (53) |
| 698 | ||||
Total collection |
| 4,062 |
| (447) |
| 3,615 | ||||
Landfill | 1,177 | (385) | 792 | |||||||
Transfer | 560 | (251) | 309 | |||||||
Total Collection and Disposal |
| 5,799 |
| (1,083) |
| 4,716 | ||||
Recycling Processing and Sales |
| 436 |
| (68) |
| 368 | ||||
WM Renewable Energy |
| 70 |
| (1) |
| 69 | ||||
Corporate and Other | 12 | (6) | 6 | |||||||
Total | $ | 6,317 | $ | (1,158) | $ | 5,159 | ||||
2023 | ||||||||||
Commercial |
| $ | 1,412 | $ | (161) | $ | 1,251 | |||
Industrial |
| 933 | (177) |
| 756 | |||||
Residential | 854 | (25) | 829 | |||||||
Other collection |
| 689 |
| (50) |
| 639 | ||||
Total collection |
| 3,888 |
| (413) |
| 3,475 | ||||
Landfill | 1,150 | (391) | 759 | |||||||
Transfer | 540 | (251) | 289 | |||||||
Total Collection and Disposal |
| 5,578 |
| (1,055) |
| 4,523 | ||||
Recycling Processing and Sales |
| 374 |
| (80) |
| 294 | ||||
WM Renewable Energy |
| 70 |
| (1) |
| 69 | ||||
Corporate and Other | 12 | (6) | 6 | |||||||
Total | $ | 6,034 | $ | (1,142) | $ | 4,892 | ||||
| (a) | Intercompany operating revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service. |
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The following table provides details associated with the period-to-period change in revenues and average yield (dollars in millions):
Period-to-Period Change for the |
| |||||||||||
As a % of |
| As a % of |
| |||||||||
Related |
| Total |
| |||||||||
| Amount |
| Business(a) |
|
| Amount |
| Company(b) | ||||
Collection and Disposal | $ | 218 | 5.1 | % | ||||||||
Recycling Processing and Sales and WM Renewable Energy (c) |
| 60 | 15.7 |
| ||||||||
Energy surcharge and mandated fees (d) |
| (28) | (11.3) |
| ||||||||
Total average yield (e) |
| $ | 250 | 5.1 | % | |||||||
Volume (f) |
|
| (1) | — | ||||||||
Internal revenue growth | 249 | 5.1 | ||||||||||
Acquisitions | 19 | 0.4 | ||||||||||
Divestitures | (1) | — | ||||||||||
Foreign currency translation | — | — | ||||||||||
Total | $ | 267 | 5.5 | % | ||||||||
| (a) | Calculated by dividing the increase or decrease for the current year period by the prior year period’s related business revenue adjusted to exclude the impacts of divestitures for the current year period. |
| (b) | Calculated by dividing the increase or decrease for the current year period by the prior year period’s total Company revenue adjusted to exclude the impacts of divestitures for the current year period. |
| (c) | Includes combined impact of commodity price variability in both our Recycling Processing and Sales and WM Renewable Energy segments, as well as changes in certain recycling fees charged by our collection and disposal operations. |
| (d) | Our energy surcharge was revised in the second quarter of 2023 to incorporate market prices for both diesel and compressed natural gas (“CNG”). |
| (e) | The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company. |
| (f) | Includes activities from our Corporate and Other businesses. |
The following provides further details about our period-to-period change in revenues:
Average Yield
Collection and Disposal Average Yield — This measure reflects the effect on our revenue from the pricing activities of our collection, transfer and landfill operations, exclusive of volume changes. Revenue growth from Collection and Disposal average yield includes not only base rate changes and environmental and service fee fluctuations, but also (i) certain average price changes related to the overall mix of services, which are due to the types of services provided; (ii) changes in average price from new and lost business and (iii) price decreases to retain customers.
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The details of our revenue growth from Collection and Disposal average yield are as follows (dollars in millions):
Period-to-Period Change for the |
| |||||
Three Months Ended | ||||||
March 31, 2024 vs. 2023 | ||||||
As a % of | ||||||
Related | ||||||
| Amount |
| Business |
| ||
Commercial | $ | 86 | 6.8 | % | ||
Industrial |
| 49 | 5.8 | |||
Residential |
| 51 | 6.4 | |||
Total collection |
| 186 | 6.1 | |||
Landfill |
| 17 | 2.4 | |||
Transfer |
| 15 | 5.5 | |||
Total Collection and Disposal | $ | 218 | 5.1 | % | ||
Our overall pricing efforts are focused on keeping pace with the increasing costs and capital needs of our business. We are also continuing to focus on price increases in our disposal business with our municipal solid waste business experiencing average yield of 4.6% for the first quarter of 2024.
Recycling Processing and Sales and WM Renewable Energy — Recycling Processing and Sales revenues attributable to yield increased $58 million in the first quarter of 2024 as compared with prior year period. During the first quarter of 2024, average market prices for single-stream recycled commodities were up 57% as compared with the prior year period. Yield from the WM Renewable Energy segment was essentially flat with increases in Renewable Identification Numbers (“RINs”) values largely offset by a decrease in market prices for power. While there may be short-term fluctuations in our commodity-driven businesses as prices change, we continue to take proactive steps to adjust our business models to protect against the downside risk of changes in commodity prices.
Energy Surcharge and Mandated Fees — These fees, which include our energy surcharge program and other mandated fees, decreased $28 million for the first quarter of 2024, as compared with the prior year period. Beginning in the second quarter of 2023, our energy surcharge was revised to incorporate market prices for both diesel and CNG. The decrease in energy surcharge revenues in the first quarter of 2024 is primarily due to a decline of approximately 10% in market prices for diesel fuel as compared to the prior year period. The mandated fees are primarily related to fees and taxes assessed by various state, county and municipal government agencies at our landfills and transfer stations. These amounts have not significantly impacted the change in revenue for the first quarter of 2024, as compared with the prior year period.
Volume
Our revenues from volume (excluding volumes from acquisitions and divestitures) decreased $1 million for the first quarter of 2024 as compared with the prior year period. Special waste volumes at our landfills continue to be strong primarily due to higher contributions from event-driven projects. In addition, our WMSBS business volumes grew as a result of our continued focus on a differentiated service model for national accounts customers. However, these increases have been offset by a decline in our industrial collection volumes primarily due to lower contributions from temporary business as well as our intentional shedding of low-margin residential collection volumes. Furthermore, our construction and demolition landfill volumes have declined on a year-over-year basis due to the impact of clean-up efforts in our East Tier from Hurricane Ian in the prior year.
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Operating Expenses
The following table summarizes the major components of our operating expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):
| 2024 |
| 2023 | |||||||||
Labor and related benefits | $ | 893 |
| 17.3 | % | $ | 914 |
| 18.7 | % | ||
Transfer and disposal costs |
| 315 | 6.1 |
| 307 | 6.3 | ||||||
Maintenance and repairs |
| 489 | 9.5 |
| 491 | 10.0 | ||||||
Subcontractor costs |
| 536 | 10.4 |
| 509 | 10.4 | ||||||
Cost of goods sold |
| 228 | 4.4 |
| 185 | 3.8 | ||||||
Fuel |
| 112 | 2.2 |
| 139 | 2.8 | ||||||
Disposal and franchise fees and taxes |
| 172 | 3.3 |
| 170 | 3.5 | ||||||
Landfill operating costs |
| 129 | 2.5 |
| 117 | 2.4 | ||||||
Risk management |
| 77 | 1.5 |
| 73 | 1.5 | ||||||
Other |
| 189 | 3.7 |
| 181 | 3.7 | ||||||
$ | 3,140 | 60.9 | % | $ | 3,086 | 63.1 | % | |||||
Our operating expenses for the first quarter of 2024 increased, as compared with the first quarter of 2023, primarily due to (i) commodity-driven business impacts from higher recycling rebates reflected in costs of goods sold; (ii) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling and services than our Collection and Disposal businesses and (iii) inflationary pressures which have moderately declined from the high levels observed during the first half of 2023. These increases were offset, in part, by (i) commodity-driven business impacts from lower fuel prices and (ii) improved operating efficiency and cost control initiatives in our Collection and Disposal businesses, as reflected in lower labor and benefits and maintenance and repairs costs as compared with the first quarter of 2023. Although our operating expenses increased overall, efficiency gains, improved turnover, and momentum in truck deliveries combined with the benefit of price increases positioned us to significantly reduce our operating expenses as a percentage of revenue when compared with prior period.
Significant items affecting the comparison of operating expenses for the reported periods include:
Labor and Related Benefits — The decrease in labor and related benefits costs was largely driven by efficiency improvements in the Collection and Disposal businesses as demonstrated by (i) lower headcount; (ii) decreased overtime and (iii) a significant reduction in training hours. Improved driver retention was an important contributing factor to accomplish this result. The efficiency and turnover driven decreases in costs were offset, in part, by annual employee wage increases.
Transfer and Disposal Costs — The increase in transfer and disposal costs was primarily due to inflationary cost increases, which includes increased disposal fees at third-party sites and higher rates from our third-party haulers offset, in part, by decreases in industrial and residential collection volumes.
Maintenance and Repairs — The slight decrease in maintenance and repairs costs was largely driven by an improvement in new truck deliveries, which lowered average fleet age and reduced demand for third-party services, parts and supplies.
Subcontractor Costs — The increase in subcontractor costs was primarily due to (i) an increase in volumes in our WMSBS business, which relies more extensively on subcontracted hauling and services than our Collection and Disposal businesses and (ii) continued inflationary cost increases, particularly labor costs from third-party haulers. These increases were offset, in part, by the impact of lower fuel prices on third-party subcontracted hauling and services as compared with the first quarter of 2023.
Cost of Goods Sold — The increase in cost of goods sold was primarily driven by a 57% increase in recycling commodity prices compared to the prior year period.
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Fuel — The decrease in fuel costs was primarily due to a decrease of approximately 10% in market prices for diesel fuel.
Disposal and Franchise Fees and Taxes — The slight increase in disposal and franchise fees and taxes was primarily driven by higher franchise and host community fees paid to certain municipalities where we operate.
Landfill Operating Costs — The increase in landfill operating costs was primarily due to (i) certain adjustments to our environmental remediation reserve during the first quarter of 2024, and (ii) higher costs across our landfills for leachate collection and treatment.
Risk Management — Risk management costs increased during the first quarter of 2024 as compared with the first quarter of 2023 primarily due to expected increases in premiums for property coverage.
Other — Other operating cost increases were primarily due to a favorable litigation settlement during the first quarter of 2023, which reduced our expense, and an increase in property taxes. These increases were offset, in part, by (i) lower equipment rental costs attributable, in part, to improved truck deliveries in late 2023 and early 2024 and (ii) security costs during the first quarter of 2023 attributable to a labor dispute which did not recur in 2024.
Selling, General and Administrative Expenses
The following table summarizes the major components of our selling, general and administrative expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):
| 2024 |
| 2023 | |||||||||
Labor and related benefits | $ | 321 |
| 6.2 | % | $ | 312 |
| 6.4 | % | ||
Professional fees |
| 47 | 0.9 |
| 50 | 1.0 | ||||||
Provision for bad debts |
| 10 | 0.2 |
| 9 | 0.2 | ||||||
Other |
| 113 | 2.2 |
| 105 | 2.1 | ||||||
$ | 491 | 9.5 | % | $ | 476 | 9.7 | % | |||||
Selling, general and administrative expenses have increased primarily due to (i) increased labor costs from higher annual incentive compensation costs and annual wage increases and (ii) increased technology spend. Although our costs increased, the significant revenue increases positioned us to reduce our overall selling, general and administrative expenses as a percentage of revenue when compared with the prior period.
Significant items affecting the comparison of our selling, general and administrative expenses for the reported periods include:
Labor and Related Benefits — The increase in labor and related benefits costs was primarily related to (i) higher annual incentive compensation costs and (ii) annual employee wage increases. These increases were partially offset by a reduction in the hourly workforce as we have leveraged automation and technology to address attrition, particularly in our customer experience function.
Professional Fees —The decrease in professional fees was primarily attributable to reduced expenses in connection with investments in our digital platform, as certain strategic projects have now been implemented.
Other — The increase in other expenses was primarily related to increased spend across multiple cost categories such as computers, travel, and other support costs.
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Depreciation, Depletion and Amortization Expenses
The following table summarizes the components of our depreciation, depletion and amortization expenses for the three months ended March 31 (in millions of dollars and as a percentage of revenues):
2024 |
| 2023 | |||||||||
Depreciation of tangible property and equipment | $ | 308 |
| 6.0 | % | $ | 293 |
| 6.0 | % | |
Depletion of landfill airspace |
| 176 | 3.4 |
| 178 | 3.6 | |||||
Amortization of intangible assets |
| 30 | 0.6 |
| 34 | 0.7 | |||||
$ | 514 | 10.0 | % | $ | 505 | 10.3 | % | ||||
The increase in depreciation of tangible property and equipment during the first quarter of 2024, as compared with the first quarter of 2023, was primarily driven by additional depreciation due to investments in capital assets to service our customers, such as trucks, machinery and equipment, and containers. The decrease in depletion of landfill airspace during the first quarter of 2024, as compared with the first quarter of 2023, was driven by the closure of a previously reopened landfill in our East Tier. The decrease in amortization of intangible assets during the first quarter of 2024, as compared with the first quarter of 2023, was primarily driven by the amortization of acquired intangible assets.
Income from Operations
The following table summarizes income from operations for our reportable segments for the three months ended March 31 (dollars in millions):
Period-to-Period | ||||||||||||
| 2024 |
| 2023 | Change |
| |||||||
Collection and Disposal: |
|
|
|
|
|
|
| |||||
East Tier | $ | 654 | $ | 531 | $ | 123 |
| 23.2 | % | |||
West Tier |
| 627 |
| 531 |
| 96 |
| 18.1 | ||||
Other Ancillary |
| (2) |
| 2 |
| (4) |
| * | ||||
Collection and Disposal |
| 1,279 |
| 1,064 |
| 215 |
| 20.2 | ||||
Recycling Processing and Sales | 19 | 13 | 6 | 46.2 | ||||||||
WM Renewable Energy | 21 | 20 | 1 | 5.0 | ||||||||
Corporate and Other | (303) | (272) | (31) | 11.4 | ||||||||
Total (a) | $ | 1,016 | $ | 825 | $ | 191 |
| 23.2 | % | |||
Percentage of revenues | 19.7 | % | 16.9 | % | ||||||||
* Percentage change does not provide a meaningful comparison.
| (a) | From time to time, the operating results of our reportable segments are significantly affected by certain transactions or events that management believes are not indicative or representative of our results. |
The significant items affecting income from operations for our segments during the first quarter of 2024, as compared with the prior year period, are summarized below:
Collection and Disposal — Income from operations in our Collection and Disposal businesses increased primarily due to intentional efforts to improve the efficiency and operating costs incurred to serve our customers. Revenue growth from price increases, which translate into increased yield or average unit price, also contributed to the increase in income from operations. These increases were partially offset by (i) increased subcontractor costs within our WMSBS business which relies more extensively on subcontracted hauling and services than other parts of our Collection and Disposal
29
businesses and (ii) a decline in industrial collection volumes primarily due to lower contributions from temporary businesses as well as our intentional efforts to reduce unprofitable residential collection volumes.
Recycling Processing and Sales — The increase in income from operations in Recycling Processing and Sales was primarily driven by an increase in the price for recycled commodities compared to the prior year.
WM Renewable Energy — The increase in income from operations in WM Renewable Energy was primarily driven by (i) increased revenue due to higher RINs pricing and (ii) a reduction in professional fees.
Corporate and Other — The decrease in income from operations was primarily driven by (i) higher annual incentive compensation and (ii) certain adjustments to our environmental remediation reserve during the first quarter of 2024. The decrease was partially offset by a decrease in health and welfare costs attributable to a headcount driven decline in plan participants.
Interest Expense, Net
Our interest expense, net was $130 million and $120 million during the three months ended March 31, 2024 and 2023, respectively. The increase is primarily related to an increase in our weighted average borrowing rate of approximately 15 basis points.
Equity in Net Losses of Unconsolidated Entities
We recognized equity in net losses of unconsolidated entities of $19 million and $11 million during the three months ended March 31, 2024 and 2023, respectively. The losses for each period were primarily related to our noncontrolling interests in entities established to invest in and manage low-income housing properties. We generate tax benefits, including tax credits, from the losses incurred from these investments which are discussed further in Note 4 to the Condensed Consolidated Financial Statements.
Income Tax Expense
Our income tax expense and effective income tax rates were $162 million, or 18.6%, and $164 million, or 23.6%, for the three months ended March 31, 2024 and 2023, respectively. See Note 4 to the Condensed Consolidated Financial Statements for more information related to income taxes.
Tax Legislation — The Inflation Reduction Act of 2022 (“IRA”) was signed into law by President Biden on August 16, 2022 and contains several tax-related provisions, including with respect to (i) alternative fuel tax credits; (ii) tax incentives for investments in renewable energy production, carbon capture, and other climate actions and (iii) the overall measurement of corporate income taxes. Given the complexity and uncertainty around the applicability of the legislation to our specific facts and circumstances, we continue to analyze the IRA provisions to identify and quantify potential opportunities and applicable benefits included in the legislation. The provisions of the IRA related to alternative fuel tax credits secure approximately $55 million of annual pre-tax benefit (recorded as a reduction in our operating expense) for tax credits in 2022, 2023 and 2024.
With respect to the investment tax credit, as expanded by the IRA, we expect the cumulative benefit to be between $250 million and $350 million, a large portion of which is anticipated to be realized in 2024 through 2026. The Company projects a full year investment tax credit benefit of approximately $145 million, which is derived from the projected completion of five new RNG facilities by the end of 2024. The amount of the projected investment tax credit benefit for 2024 is based on a number of estimates and assumptions, including the timing of project completion and interpretation of the IRA.
Recently, however, the IRS issued proposed regulations applicable to the investment tax credits that could call into question our ability to realize some, or all, of this tax benefit, which would negatively impact financial expectations in connection with our significant planned and ongoing investments in sustainability growth projects in our WM Renewable
30
Energy segment. The proposed regulations provide a public comment period to allow taxpayers to provide input prior to the issuance of final regulations. In coordination with other members of the RNG industry, we are actively using this public comment period to work with external advisors, the U.S. Congress, the current federal administration, and other biogas sector stakeholders to encourage the Treasury Department to further refine its analysis prior to publication of final regulations that more accurately reflect the express language and legislative intent of the statute with respect to the investment tax credit. However, there is no guarantee that such efforts will be successful. We expect that the production tax credit incentives for investments in renewable energy and carbon capture, as expanded by the IRA, will likely result in an incremental benefit to the Company, although at this time, the anticipated amount of such benefit has not been quantified.
Liquidity and Capital Resources
The Company consistently generates cash flow from operations that meets and exceeds our working capital needs, allows for payment of our dividends, investment in the business through capital expenditures and tuck-in acquisitions, and funding of strategic sustainability growth investments. We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources, enabling us to plan for our present needs and fund unbudgeted business requirements that may arise during the year. The Company believes that its investment grade credit ratings, diverse investor base, large value of unencumbered assets and modest leverage enable it to obtain adequate financing, and refinance upcoming maturities, as necessary to meet its ongoing capital, operating, strategic and other liquidity requirements. We also have the additional ability to manage liquidity during periods of significant financial market disruption through temporary modification of our capital expenditure and share repurchase plans.
Summary of Cash and Cash Equivalents, Restricted Funds and Debt Obligations
The following is a summary of our cash and cash equivalents, restricted funds and debt balances (in millions):
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Cash and cash equivalents | $ | 322 | $ | 458 | ||
Restricted funds: |
|
|
| |||
Insurance reserves | $ | 492 | $ | 376 | ||
Final capping, closure, post-closure and environmental remediation funds | 120 | 119 | ||||
Other |
| 2 |
| 17 | ||
Total restricted funds (a) | $ | 614 | $ | 512 | ||
Debt: |
|
|
|
| ||
Current portion | $ | 336 | $ | 334 | ||
Long-term portion |
| 15,762 |
| 15,895 | ||
Total debt | $ | 16,098 | $ | 16,229 | ||
| (a) | As of March 31, 2024 and December 31, 2023, $90 million of these account balances were included in other current assets in our Condensed Consolidated Balance Sheets. |
As of March 31, 2024, we had approximately $3.1 billion of debt maturing within the next 12 months, including (i) $750 million of short-term borrowings under our commercial paper program (net of related discount on issuance); (ii) $1.6 billion of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities; (iii) $156 million of 3.5% senior notes that mature in May 2024; (iv) $422 million of 3.125% senior notes that mature in March 2025 and (v) $180 million of other debt with scheduled maturities within the next 12 months, including $60 million of tax-exempt bonds. As of March 31, 2024, we have classified $2.8 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 $336 million of debt maturing in the next 12 months is classified as current obligations.
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Guarantor Financial Information
WM Holdings has fully and unconditionally guaranteed all of WMI’s senior indebtedness. WMI has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WMI’s other subsidiaries have guaranteed any of WMI’s or WM Holdings’ debt. In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WMI and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WMI and WM Holdings on a combined basis after elimination of intercompany transactions between WMI and WM Holdings and amounts related to investments in any subsidiary that is a non-guarantor (in millions):
| March 31, 2024 |
| December 31, 2023 | |||
Balance Sheet Information: | ||||||
Current assets |
| $ | 162 |
| $ | 276 |
Noncurrent assets | 12 | 25 | ||||
Current liabilities |
| 300 |
| 336 | ||
Noncurrent liabilities: | ||||||
Advances due to affiliates | 21,847 | 21,228 | ||||
Other noncurrent liabilities |
| 13,694 |
| 13,798 | ||
| Three Months Ended | ||
March 31, 2024 | |||
Income Statement Information: | |||
Revenue |
| $ | — |
Operating income | (134) | ||
Net loss | (99) | ||
Summary of Cash Flow Activity
The following is a summary of our cash flows for the three months ended March 31 (in millions):
| 2024 |
| 2023 | |||
Net cash provided by operating activities | $ | 1,367 | $ | 1,044 | ||
Net cash used in investing activities | $ | (755) | $ | (778) | ||
Net cash used in financing activities | $ | (737) | $ | (319) | ||
Net Cash Provided by Operating Activities — Our operating cash flows increased by $323 million for the three months ended March 31, 2024, as compared with the prior year period, driven by (i) higher earnings in our Collection and Disposal businesses and Recycling Processing and Sales segment, (ii) favorable changes in working capital, net of effects of acquisitions and divestitures, and (iii) lower annual incentive compensation payments. This increase was partially offset by higher cash interest payments.
Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the three months ended March 31, 2024 and 2023 are summarized below:
| ● | Capital Expenditures — We used $668 million and $660 million for capital expenditures during the three months ended March 31, 2024 and 2023, respectively. The increase in capital spending is primarily driven by our planned and ongoing investments in our Recycling Processing and Sales and WM Renewable Energy segments. |
| ● | Other, Net — The year-over-year changes in other investing activities were primarily driven by changes in our investment portfolio associated with a wholly-owned insurance captive. During the three months ended March 31, 2024 and 2023, we used $90 million and $85 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale securities. |
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Net Cash Used in Financing Activities — The most significant items affecting the comparison of our financing cash flows for the three months ended March 31, 2024 and 2023 are summarized below:
| ● | Debt Borrowings and Repayments — The following summarizes our cash borrowings and repayments of debt for the three months ended March 31 (in millions): |
| 2024 | 2023 | ||||
Borrowings: |
|
|
|
| ||
Commercial paper | $ | 4,412 | $ | 5,643 | ||
Senior notes | — | 1,242 | ||||
| $ | 4,412 | $ | 6,885 | ||
Repayments: |
|
|
|
|
| |
Commercial paper | $ | (4,528) | $ | (6,520) | ||
Other debt |
|
| (42) |
| (28) | |
| $ | (4,570) | $ | (6,548) | ||
Net cash borrowings (repayments) | $ | (158) | $ | 337 | ||
Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to our debt borrowings and repayments.
| ● | Common Stock Repurchase Program — During the three months ended March 31, 2024 and 2023, we used $250 million and $350 million, respectively, to repurchase shares of our common stock under accelerated share repurchase agreements. See Note 9 to the Condensed Consolidated Financial Statements for additional information. |
| ● | Cash Dividends — For the periods presented, all dividends have been declared by our Board of Directors. We paid cash dividends of $307 million and $289 million during the three months ended March 31, 2024 and 2023, respectively. The increase in dividend payments is primarily due to our quarterly per share dividend increasing from $0.70 in 2023 to $0.75 in 2024. |
Free Cash Flow
We are presenting free cash flow, which is a non-GAAP measure of liquidity, in our disclosures because we use this measure in the evaluation and management of our business. We define free cash flow as net cash provided by operating activities, less capital expenditures, plus proceeds from divestitures of businesses and other assets, net of cash divested. We believe it is indicative of our ability to pay our quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay our debt obligations. Free cash flow is not intended to replace net cash provided by operating activities, which is the most comparable GAAP measure. We believe free cash flow gives investors useful insight into how we view our liquidity, but the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that we have committed to, such as declared dividend payments and debt service requirements.
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Our calculation of free cash flow and reconciliation to net cash provided by operating activities for the three months ended March 31 is shown in the table below (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:
2024 |
| 2023 | |||
Net cash provided by operating activities | $ | 1,367 | $ | 1,044 | |
Capital expenditures to support the business |
| (502) |
| (504) | |
Capital expenditures - sustainability growth investments (a) | (166) | (156) | |||
Total capital expenditures | (668) | (660) | |||
Proceeds from divestitures of businesses and other assets, net of cash divested |
| 15 |
| 11 | |
Free cash flow | $ | 714 | $ | 395 | |
(a) | These growth investments are intended to further our sustainability leadership position by increasing recycling volumes and growing renewable natural gas generation. We expect they will deliver circular solutions for our customers and drive environmental value to the communities we serve. |
Critical 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, intangible asset impairments and the fair value of assets and liabilities acquired in business combinations, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
Seasonal Trends
Our financial and operating results may fluctuate for many reasons, including period-to-period changes in the relative contribution of revenue by each line of business, changes in commodity prices and general economic conditions. Our operating revenues and volumes typically experience seasonal increases in the summer months that are reflected in second and third quarter revenues and results of operations.
Service or operational disruptions caused by severe storms, extended periods of inclement weather or climate events can significantly affect the operating results of the geographic areas affected. Extreme weather events may also lead to supply chain disruption and delayed project development, or disruption of our customers’ businesses, reducing the amount of waste generated by their operations.
Conversely, certain destructive weather and climate conditions, such as wildfires in the Western U.S. and hurricanes that most often impact our operations in the Southern and Eastern U.S. during the second half of the year, can increase our revenues in the geographic areas affected as a result of the waste volumes generated by these events. While weather-related and other event-driven special projects can boost revenues through additional work for a limited time, due to significant start-up costs and other factors, such revenue can generate earnings at comparatively lower margins.
Inflation
Macroeconomic pressures continue, including sustained inflationary pressures and high interest rates, with geopolitical events causing further market disruptions. Inflation moderately declined from the high levels observed during the first half of 2023; however, inflation remained above typical levels during the first quarter of 2024. While supply chain activity has begun to normalize, risks persist related to higher operating costs, ongoing supply shortages, labor and
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transportation challenges and impacts from global events. We continue to take proactive steps to recover and mitigate inflationary cost pressures through our overall pricing efforts and by managing our costs through efficiency, labor productivity, and investments in technology to automate certain aspects of our business. These efforts may not be successful for various reasons including the pace of inflation, operating cost inefficiencies, market responses, and contractual limitations, such as the timing lag in our ability to recover increased costs under certain contracts that are tied to a price escalation index with a lookback provision.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information about market risks as of March 31, 2024 does not materially differ from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures.
Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) in ensuring that the information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of March 31, 2024 (the end of the period covered by this Quarterly Report on Form 10-Q) at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended March 31, 2024. We determined that there were no changes in our internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
Item 1. Legal Proceedings.
Information regarding our legal proceedings can be found under the Environmental Matters and Litigation sections of Note 6 to the Condensed Consolidated Financial Statements.
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Item 1A. Risk Factors.
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes common stock repurchases made during the first quarter of 2024 (shares in millions):
Issuer Purchases of Equity Securities
Total Number of |
| ||||||||||
Total | Shares Purchased as | Approximate Maximum |
| ||||||||
Number of | Average | Part of Publicly | Dollar Value of Shares that |
| |||||||
Shares | Price Paid | Announced Plans or | May Yet be Purchased Under |
| |||||||
Period |
| Purchased |
| per Share(a) |
| Programs |
| the Plans or Programs(a) |
| ||
January 1 — 31 |
| — | $ | — | — | $ | 1.5 billion | ||||
February 1 — 29 (b) |
| 1.2 | $ | 194.80 | 1.2 | $ | 1.25 billion | ||||
March 1 — 31 |
| — | $ | — | — | $ | 1.25 billion | (c) | |||
Total |
| 1.2 | $ | 194.80 | 1.2 | ||||||
| (a) | In the table above and footnotes below, the average price paid per share, total repurchase costs and approximate maximum dollar value of shares that may yet be purchased under the plans or programs exclude the 1% excise tax. |
| (b) | In October 2023, we executed an accelerated share repurchase (“ASR”) agreement to repurchase $300 million of our common stock. At the beginning of the repurchase period, we delivered $300 million in cash and initially received 1.5 million shares based on a stock price of $161.38. The ASR agreement completed in February 2024, at which time we received 0.2 million additional shares based on a final weighted average price of $175.29. |
In February 2024, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $250 million of our common stock. At the beginning of the repurchase period, we delivered $250 million cash and initially received 1.0 million shares based on a stock price of $199.16. The ASR agreement completed in April 2024, and we received 0.2 million additional shares based on a final weighted average price of $206.23.
The average price per share reported in the table reflects the weighted average price of (i) the final share delivery from the October 2023 ASR, which was made in February 2024, and (ii) the initial share delivery of the February 2024 ASR.
| (c) | As of March 31, 2024, the Company has authorization for $1.25 billion of future share repurchases. The amount of future share repurchases executed under our Board of Directors’ authorization is determined in management’s discretion, based on various factors, including our net earnings, financial condition and cash required for future business plans, growth and acquisitions. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Information concerning mine safety and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this quarterly report.
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Item 5. Other Information.
Securities Trading Plans of Directors and Executive Officers
On
On
On
On
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Item 6. Exhibits.
Exhibit No. |
| Description |
10.1 | ||
10.2 | ||
10.3* | ||
22.1* | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
95* | ||
101.INS* | Inline XBRL Instance. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema. | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation. | |
101.LAB* | Inline XBRL Taxonomy Extension Labels. | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation. | |
101.DEF* | Inline XBRL Taxonomy Extension Definition. | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WASTE MANAGEMENT, INC. | ||
By: | /s/ DEVINA A. RANKIN | |
Devina A. Rankin | ||
Executive Vice President and | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
WASTE MANAGEMENT, INC. | ||
By: | /s/ JOHN CARROLL | |
John Carroll | ||
Vice President and | ||
Chief Accounting Officer | ||
(Principal Accounting Officer) | ||
Date: April 25, 2024 | ||
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EXHIBIT 10.3
2024 Long Term Incentive Compensation
Award Agreement
for the Leadership Tier (CAO) under the
Waste Management, Inc. 2023 Stock Incentive Plan
This Award Agreement (this “Agreement”) is entered into effective as of March 1, 2024 (the “Grant Date”), by and between Waste Management, Inc., a Delaware corporation (the “Company”) (together with its Subsidiaries and Affiliates, “WM”), and you (“Employee”). At all times, the Awards under this Agreement are subject to the terms and conditions of the Waste Management, Inc. 2023 Stock Incentive Plan (the “Plan”), this Agreement, and all applicable administrative interpretations and practices. A copy of the Plan and the Plan Prospectus is available online at www.benefits.ml.com . Please also see the Company’s Form 10-K included in its most recent Annual Report, available on the Investor Relations page of www.wm.com under Financial Reporting – Annual Reports, for information about the Company. By executing this Agreement, you consent to receipt of the Plan, the Prospectus, and the Annual Reports by electronic access as set forth in this paragraph.
You must execute this Agreement in full, online in accordance with the instructions below, prior to April 1, 2024, in order for this Agreement to become effective. If you do not execute this Agreement by correctly following the instructions below, your Awards may be cancelled.
Important Instructions for Executing this Agreement
If you are a new equity award participant, you must open a Limited Individual Investor Account (LIIA) before you can accept your awards. To open your LIIA, log in to www.benefits.ml.com at the secure website maintained by the third-party stock administrator. Once logged in, follow the prompts to “Open a Brokerage Account”. When you have successfully created your account, follow the online instructions, and complete all the steps required to accept the award.
If you have previously received a stock-based incentive award, log on to www.benefits.ml.com at the secure website maintained by the third-party stock administrator. Follow the online instructions and complete all the steps required to accept the award.
Performance Share Units
| 1. | PSU Grant. The Company grants to Employee a Restricted Stock Unit Award subject to performance-based vesting conditions (a “PSU Award”), as provided in the Notice of Long-Term Incentive Award (the “Notice”). Each Restricted Stock Unit subject to performance-based vesting conditions (a “Performance Share Unit” or “PSU”) is a notational unit of measurement denominated in Common Stock. |
| 2. | PSU Metrics. |
| a. | The Performance Period for this PSU Award is the 36-month period beginning January 1, 2024, and ending on December 31, 2026. Vesting and payout of your PSU Award is based upon the level of achievement of the Performance Goals that have been set by the Committee. The Performance Goals set by the Committee for your PSU Awards are described in paragraph 3 below. |
| b. | The performance measure selected by the Committee to serve as the Performance Goal for half (50%) of your Target PSU Award is Cash Flow Generation (as defined below). The performance measure selected by the Committee to serve as the Performance Goal for the other half (50%) of your Target PSU Award is Total |
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| Shareholder Return Relative to the S&P 500, or TSR (as defined below). To determine the payout (if any) under your PSU Award, the Committee will determine the level of the Performance Goal reached (“Achievement”) and the corresponding payout percentage applicable to each half of your Target PSU Award under paragraph 3 below. The Committee’s determinations, and the related calculations, including the calculation of Cash Flow Generation and TSR, are made by, and in the sole discretion of, the Committee, and are final and not subject to appeal. |
| c. | Cash Flow Generation is the net cash flow provided by operating activities of WM for the Performance Period, less capital expenditures, with the following adjustments: |
| i. | Payments related to costs (including legal costs) associated with labor disruptions (e.g., strikes) and actual or potential multiemployer plan withdrawal liability(ies) are excluded as expenditures required as a result of past labor commitments combined with changing economic conditions of the present business climate; |
| ii. | Strategic acquisition, restructuring, transformation and reorganization costs are excluded in recognition of WM’s goals to increase customer and business base while minimizing operating costs; and |
| iii. | If any accounting rule or tax law change occurs that was not anticipated in setting the Cash Flow Generation target, any material impact of that change will be disregarded in calculating the Cash Flow Generation result. |
In addition to the above, the following adjustments will be made when the aggregate impact of the following items has a greater than 5% impact on attainment:
| iv. | Impacts from strategic acquisitions or divestitures of assets or businesses are excluded (EBITDA, capital expenditures, working capital, and proceeds from divestitures) (Impacts from normal course of business acquisitions and divestitures are included); |
| v. | Impacts from discrete growth capital investment projects made to support the long-term organic growth of the business that were not specifically planned for in setting the Cash Flow Generation target are excluded; and |
| vi. | Material changes in the realization of earnings and cash flow contributions for growth capital investments caused by items outside of WM’s control will be excluded. |
The Committee, solely in its discretion, is permitted to make other adjustments to reflect management’s performance consistent with maximizing shareholder value; provided that such other adjustments shall not reduce the Cash Flow Generation amount.
| d. | TSR is the percentile performance of the Company as compared to the other S&P 500 Companies for the Performance Period. For these purposes: |
i. S&P 500 Companies means all the entities listed on the Standard & Poor’s 500 Composite Index, including the Company, on the date which is 30 trading days prior to the commencement of the Performance Period, with the following modifications:
A. except as provided below, only those entities that continue to trade throughout the Performance Period without interruption on a National Exchange shall be included; and
B. any such entity that files for bankruptcy (“Bankrupt Peer”) during the Performance Period shall continue to be included.
For these purposes National Exchange shall mean a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934.
ii. Total Shareholder Return is the result of dividing (1) the sum of the cumulative value of an entity’s dividends for the Performance Period, plus the entity’s Ending Price, minus the Beginning Price, by (2) the Beginning Price. For purposes of determining the cumulative value of an entity’s dividends during the Performance Period, it will be assumed that all dividends declared and paid with respect to a particular entity during the Performance Period were reinvested in such entity at the ex-dividend date, using the closing price on such date. The aggregate shares, or fractional shares thereof, that will be assumed to be purchased as part of the reinvestment calculation will be multiplied by the Ending Price to determine the cumulative value of an entity’s dividends for the Performance Period. For these purposes:
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| A. | Price is the per share closing price, as reported by the Bloomberg L.P. (or any other publicly available reporting service that the Committee may designate from time to time) of a share or share equivalent on the applicable stock exchange. |
| B. | Beginning Price is the average Price for the period of 20 trading days immediately preceding the first day of the Performance Period. |
| C. | Ending Price is the average Price for the period of 20 trading days immediately preceding and including the final day of the Performance Period. |
| D. | Bankrupt Peer: Notwithstanding anything in the foregoing to the contrary, any Bankrupt Peer shall have a Total Shareholder return of negative one hundred percent (-100%). |
iii. Relative TSR Percentile Rank is the percentile performance of the Company as compared to the S&P 500 Companies. Relative TSR Percentile Rank is determined by ranking the Company and all other S&P 500 Companies according to their respective Total Shareholder Return for the Performance Period. The ranking is in order from minimum-to-maximum, with the lowest performing entity assigned a rank of one. The Company’s ranking is then divided by the total number of entities within the S&P 500 Companies to get the Relative TSR Percentile Rank.
| 3. | PSU Payout Percentage. |
| a. | The Performance Goals are the levels of performance set by the Committee on the Grant Date with respect to each measure of performance. |
| b. | The Target PSU Award for this Agreement is based on the target number of PSUs granted by the Committee and announced in the Notice. If Achievement falls between two levels of Achievement, the resulting payout percentage will be straight line interpolated (rounding to the nearest 0.1 percent) between the payout percentages for those two levels of Achievement. |
Achievement Levels and Corresponding Payouts for PSUs Dependent on Cash Flow Generation Performance Measure
Level of Achievement | Cash Flow Generation Over the Performance Period | Payout Percentage for the applicable half of your Target PSU Award |
Threshold Performance (the minimum level of Achievement to qualify for any payout of the Cash Flow Generation half of your Target PSU Award.) | $7.050 Billion | 50% |
Target Performance (the level of Achievement to qualify for 100% payout of the Cash Flow Generation half of your Target PSU Award.) | $7.650 Billion | 100% |
Maximum Performance (the maximum level of Achievement that results in an increased number of PSUs paid out under the Cash Flow Generation half of your Target PSU Award.) | $8.250 Billion | 200% |
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Achievement Levels and Corresponding Payouts for PSUs Dependent on TSR
Total Shareholder Return Relative to the S&P 500 over the Performance Period | ||
|---|---|---|
Level of Achievement | Relative TSR Percentile Rank | Payout Percentage for the applicable half of your Target PSU Award |
Threshold Performance (the minimum level of Achievement to qualify for any payout of the TSR half of your Target PSU Award.) | 25th | 50% |
Target Performance (the level of Achievement to qualify for 100% payout of the TSR half of your Target PSU Award.) | 50th | 100% |
Maximum Performance (the maximum level of Achievement that results in an increased number of PSUs paid out under the TSR half of your Target PSU Award.) | 75th | 200% |
| 4. | Timing and Form of Payment of PSU Award. After the close of the Performance Period, the Committee will certify (with respect to each portion of your Target PSU Award relating to the separate Performance Goals) Achievement and determine the corresponding payout percentage of the PSU Award by multiplying the applicable half of the PSU Award by the applicable payout percentage. The results will sum to the total number of shares of Common Stock that you are entitled to receive (the “PSU Awarded Shares”). Unless you have a valid deferral in place for your PSU Award (see paragraph 8 under “Important Award Details” for further information on permitted deferrals), the Company will deliver the PSU Awarded Shares and payment of the corresponding Dividend Equivalent as soon as administratively feasible (and no later than 74 days after the end of the Performance Period) after the Committee’s certification and determination. |
Restricted Stock Units
| 1. | RSU Grant. The Company grants to Employee the number of Restricted Stock Units (“RSUs”) provided in the Notice. RSUs are notational units of measurement denominated in shares of Common Stock. Each RSU represents a hypothetical share of Common Stock. Upon your timely execution of this Agreement, WM will credit your RSUs to an unfunded bookkeeping account for you. |
| 2. | Vesting of RSUs. The RSUs granted by this Agreement (“RSU Awards”) vest entirely on the third (3rd) anniversary of the Grant Date, unless earlier vested or forfeited under this Agreement. The date of vesting is the Vesting Date. Except as otherwise provided herein, your RSUs generally vest only if you are continuously employed from the Grant Date to the Vesting Date, subject to the exceptions discussed below. The period from the Grant Date (inclusive) to the Vesting Date is the Restriction Period. |
| 3. | Timing and Form of Payment of RSU Award. Upon vesting, each RSU is converted to one share of Common Stock, free of any restrictions. Unless you have a valid Deferral Election in place for your RSU Award (see paragraph 8 under “Important Award Details” for further information on permitted deferrals), WM will deliver the shares of Common Stock to you and make payment of the corresponding Dividend Equivalents as soon as administratively feasible (and no later than 74 days) following the Vesting Date. |
Stock Options
| 1. | Stock Option Grant. The Company grants to Employee a stock option award (the “Stock Option Award”) for the number of shares (“Stock Options”) of Common Stock provided in the Notice. This Stock Option Award grants Employee the right to purchase shares of Common Stock at the Grant Price. The “Grant Price” is the Fair Market Value of a share of Common Stock on the Grant Date. |
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| 2. | Term. Notwithstanding any other provisions of this Agreement, the maximum term of the Stock Option Award is the 10th anniversary of the Grant Date. |
| 3. | Right to Exercise. Provided Employee remains employed by WM continuously through the applicable exercise dates, the Stock Option Award will become vested and exercisable as follows: |
Exercise Date | Cumulative Percentage of Stock Option Award Exercisable |
Prior to the first anniversary of the Grant Date | 0% |
On or after the first anniversary of the Grant Date | 34% |
On or after the second anniversary of the Grant Date | 67% |
On or after the third anniversary of the Grant Date | 100% |
| 4. | Manner of Exercise. To exercise all or a portion of the Stock Option Award, Employee must contact (either by phone or online) the third-party stock plan administrator designated by the Company and follow the procedures established by the Company for exercising a Stock Option Award. |
| 5. | Payment of Grant Price. The Grant Price is payable in full to the Company either (a) in cash or its equivalent; (b) by tendering previously acquired shares of Common Stock held for at least six months and with an aggregate fair market value at the time of exercise equal to the aggregate Grant Price; (c) to the extent Employee is an executive officer at the time of exercise, by withholding shares of Common Stock that otherwise would be acquired pursuant to the Stock Option Award; or (d) any combination of the foregoing. The Grant Price may also be paid by cashless exercise through delivery of irrevocable instructions to a broker to promptly deliver to the Company the amount of proceeds from a sale of shares having fair market value equal to the Grant Price, provided that such instructions are delivered by no later than the close of the New York Stock Exchange on the last Trading Day prior to the 10th anniversary of the Grant Date. Payment by cashless exercise shall not be considered to have occurred until the broker has issued confirmation of the transaction. For these purposes, Trading Day means a day on which the New York Stock Exchange is open for trading for its regular trading sessions. |
Important Award Details
Your Awards under this Agreement are subject to important terms and conditions set forth below. Please read them carefully and seek advice from your own legal and tax advisors before executing this Agreement.
| 1. | Death or Disability. Upon Employee’s death or disability (as determined by the Committee and within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations issued thereunder (“Section 409A”) and specifically Section 409A(a)(2)(C) (“Disability”)), Employee (or in the case of Employee’s death, Employee’s beneficiary) shall, subject to paragraph 2.e below, be entitled to: |
| a. | receive the PSU Awarded Shares and related Dividend Equivalents that Employee would have been entitled to under this Agreement if Employee had remained employed until the last day of the Performance Period and determined based upon actual Achievement through the end of the Performance Period, which shall be paid no later than 74 days following the end of the Performance Period; |
| c. | exercise all Stock Options outstanding under the Stock Option Award (whether previously exercisable) for one year following such event. Provided however, if Employee was eligible for Retirement at the time of his death or Disability, the Stock Option Award will remain exercisable for three years following the date of such event. |
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| 2. | Treatment of PSU and RSU Awards Upon Retirement or Involuntary Termination of Employment Without Cause by WM. |
| a. | Upon an involuntary Termination of Employment by WM without Cause, Employee shall, subject to the requirements below, be entitled to receive the PSU Awarded Shares and related Dividend Equivalents that Employee would have been entitled to under this Agreement if Employee had remained employed until the last day of the Performance Period and determined based upon actual Achievement through the end of the Performance Period multiplied by the fraction which has as its numerator the total number of days that Employee was employed by WM during the Performance Period and has as its denominator 1096 (which amount shall be issued and paid as soon as practicable and no later than 74 days following the end of the Performance Period). |
| d. | Upon Employee’s Retirement, Employee shall be entitled to the amount of RSUs and any related Dividend Equivalents on such RSUs through the Vesting Dates that Employee would have been entitled to under this Agreement if Employee had remained employed until the Vesting Dates multiplied by the fraction which has as its numerator the total number of days that Employee was employed by WM during the calendar year in which the Grant Date occurred and has as its denominator 366, which shall be issued and paid no later than 74 days following the normal Vesting Dates (i.e. the three-year anniversary of the Grant Date). To illustrate the preceding sentence, if Employee retires on or after the first day of the calendar year following the calendar year in which the Grant Date occurs, he or she shall be entitled to receive a full payout at such time. |
| e. | In the event Employee is employed by a subsidiary of the Company that is sold by the Company in a transaction (i) that would not constitute a Corporate Change, but (ii) that would constitute a Corporate Change with the subsidiary substituted for Company thereunder, such transaction shall be deemed to constitute an involuntary Termination of Employment by WM without Cause as of the effective date of such Transaction and Employee’s termination. |
| f. | The following terms shall have the meanings set forth below for purposes of this Agreement: |
| i. | Retirement means Termination of Employment due to the voluntary resignation of employment by Employee, after Employee (1) has reached age 55 or greater; (2) has a sum of age plus years of Service (as defined in paragraph ii. below) with WM equal to 65 or greater; and (3) has completed at least 5 consecutive full years of Service with WM during the 5-year period immediately preceding the |
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| resignation; provided, that Employee is not receiving severance benefits pursuant to the severance pay plans of WM in connection with such Termination of Employment. |
| ii. | Service is measured from Employee’s original date of hire by WM, except as provided below. In the case of a break of employment by Employee from WM of one year or more in length, Employee’s service before the break of employment is not considered Service. Service with an entity acquired by WM is considered Service so long as Employee remained continuously employed with such predecessor company(ies) and WM. In the case of a break of employment between a predecessor company and WM of any length, Employee’s Service shall be measured from the original date of hire by WM and shall not include any service with any predecessor company. |
| iii. | Termination of Employment means the termination of Employee’s employment or other service relationship with WM as determined by the Committee. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company and its Subsidiaries and Affiliates will not be considered a Termination of Employment. Any question as to whether and when there has been a Termination of Employment, and the cause of such termination, shall be determined by and in the sole discretion of the Committee and such determination shall be final. |
| iv. | Cause means any of the following: (1) willful or deliberate and continual refusal to materially perform Employee’s duties reasonably requested by WM after receipt of written notice to Employee of such failure to perform, specifying such failure (other than as a result of Employee’s sickness, illness, injury, death or disability) and Employee fails to cure such nonperformance within ten (10) days of receipt of said written notice; (2) breach of any statutory or common law duty of loyalty to WM; (3) Employee has been convicted of, or pleaded nolo contendre to, any felony; (4) Employee willfully or intentionally caused material injury to WM, its property, or its assets; (5) Employee disclosed to unauthorized person(s) proprietary or confidential information of WM that causes a material injury to WM; or (6) any material violation or a repeated and willful violation of WM’s policies or procedures, including but not limited to, WM’s Code of Business Conduct and Ethics (or any successor policy) then in effect. |
| 3. | Treatment of Stock Option Award upon Involuntary Termination; Resignation; Retirement. |
| a. | Involuntary Termination of Employment Without Cause or Resignation by Employee. Upon an involuntary Termination of Employment without Cause by WM or a Termination of Employment due to a voluntary resignation by Employee that is accepted by WM that is not a Retirement, for a period of 90 days following such Termination of Employment, Employee shall be entitled to exercise all the Stock Options then outstanding and exercisable under the Stock Option Award. Any Stock Options that are not outstanding and exercisable at the time of the applicable termination shall be forfeited without the payment of any consideration by WM, and any Stock Options that were eligible to be exercised pursuant to this paragraph 3.a but were not exercised during the 90-day exercise period shall also be forfeited without the payment of any consideration by WM. |
| b. | Retirement. Upon Employee’s Retirement, the Stock Option Award shall continue to become exercisable under the applicable exercise schedule for three years following Employee’s Retirement and once exercisable shall remain exercisable for the three-year period following Employee’s Retirement. |
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| 4. | Termination of Employment for Other Reasons. |
| b. | Stock Option Award in the Event of Involuntary Termination with Cause. Upon Termination of Employment by WM with Cause, Employee shall forfeit all Stock Options under the Stock Option Award, whether exercisable, without the payment of any consideration by WM. |
| 5. | Recoupment Provisions |
| a. | Clawback Policy |
| i. | Notwithstanding any provisions in the Plan or this Agreement to the contrary, any portion of the payments and benefits provided under this Agreement or the sale of any shares of Common Stock issued hereunder shall be subject to the Waste Management, Inc. Clawback Policy, adopted by the Committee of the Board on August 21, 2023, (as may be amended from time to time, the “Clawback Policy”) and any other clawback or recovery policy adopted by the Committee or the Board from time to time, including, without limitation, any such policy adopted in accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any rule or regulation of the SEC or New York Stock Exchange. Additionally, notwithstanding the terms of any of the organizational documents of WM, any corporate policy, or any contract between Employee and WM, Employee hereby acknowledges and agrees that Employee will not be entitled to (i) indemnification for any liability (including any amounts owed by Employee in a judgment or settlement in connection with any action taken by the Committee or the Board to enforce the Clawback Policy) (such action, a “Clawback Proceeding”) or loss (including judgments, fines, taxes, penalties or amounts paid in settlement by or on behalf of Employee incurred by Employee in connection with or as a result of any Clawback Proceeding) or (ii) indemnification or advancement of any expenses (including attorneys’ fees) from WM incurred by Employee in connection any Clawback Proceeding; provided, however, if Employee is successful on the merits in the defense of any claim asserted against Employee in a Clawback Proceeding, Employee shall be indemnified for the expenses (including attorneys' fees) Employee reasonably incurred to defend such claim. Employee knowingly, voluntarily and intentionally waives, and agrees not to asset any claims regarding, any and all rights to indemnification, advancement of expenses and other rights from WM to which Employee is now or may become entitled under any indemnity agreement or other contract between Employee and WM, the organizational documents of WM and the General Corporation Law of the State of Delaware, in each case to the extent such waiver and agreement is necessary to comply with applicable law or give effect to the preceding provisions of this paragraph. |
| b. | Repayment of Award in the Event of Misconduct. |
| i. | Overriding any other inconsistent terms of this Agreement, if the Committee, in its sole discretion, determines that Employee either engaged in or benefited from Misconduct (as defined below), then, to the fullest extent permitted by law, Employee shall refund and pay to WM any Common Stock and/or amounts (including Dividend Equivalents), plus interest, received by Employee under this Agreement. Misconduct means any act or failure to act by any employee of WM that (i) caused or was intended to cause a violation of WM’s policies or the WM code of conduct, generally accepted accounting principles |
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| or any applicable laws in effect at the time of the act or failure to act in question and that (ii) materially increased the value of the payment or Award received by Employee under this Agreement. The Committee may, in its sole discretion, delegate the determination of Misconduct to an independent third party (either a law firm or an accounting firm, hereinafter referred to as Independent Third Party) appointed by the Committee. |
| ii. | Following a determination of Misconduct by Employee, Employee may dispute such determination pursuant to binding arbitration as set forth below under “General Terms” provided, however, that if Employee is determined to have benefited from, but not engaged in, Misconduct, Employee will have no right to dispute such determination and such determination shall be conclusive and binding. |
| iii. | WM must initiate recovery pursuant to this paragraph by the earliest of (i) one year after discovery of alleged Misconduct, or (ii) the second anniversary of Employee’s Termination of Employment. |
| iv. | The provisions of this paragraph, without any implication as to any other provision of this Agreement, shall survive the expiration or termination of this Agreement and Employee’s employment. |
| 6. | Acceleration upon Corporate Change. Overriding any other inconsistent terms of this Agreement: |
| a. | PSU Award. If there is a Corporate Change before the close of the Performance Period, Employee is entitled to receive both i. and ii., as follows: |
| i. | For each half of the PSU Award, the result of an equation with a numerator of |
(x) | the respective number of PSUs Employee would have otherwise received based upon achievement of the applicable Performance Goal after reducing the Performance Period so that it ends on the last day of the quarter preceding the Corporate Change (the “Early Measurement Date”) and, for the Cash Flow Generation half of the PSU Award, after adjusting the Threshold, Target and Maximum Achievement Levels to reflect budgeted performance in the shorter Performance Period, multiplied by |
(y) | a fraction equal to (1) the number of days occurring between the beginning of the Performance Period and the Early Measurement Date (including the Early Measurement Date) divided by (2) 1096. |
Payout of the PSUs shall be an immediate cash payment (in all events paid within 74 days following the Corporate Change) equal to the number of PSUs earned under this paragraph 6.a. multiplied by the closing stock price of the Common Stock on the Early Measurement Date and will be accompanied by a cash payment of the associated Dividend Equivalents through the Early Measurement Date; and
| ii. | As a substitute award for the lost opportunity to continue to earn PSUs for the entire length of the original Performance Period: |
| 1. | If the successor entity is a publicly traded company as of the Early Measurement Date, an award of restricted stock units in the successor entity equal to the number of shares of common stock of the successor entity that could have been purchased on the Early Measurement Date with an amount of cash equal to the quotient obtained from the following equation: |
9
TAP X (1096 – EMD) x CP
1096
where
TAP is the number of PSUs represented by the Target PSU Award;
EMD is the number of days during the Performance Period which occur prior to and including the Early Measurement Date; and
CP is the closing price of a share of Common Stock of the Company on the Early Measurement Date.
Any restricted stock units in the successor entity awarded under this paragraph 6.a.ii.1. will vest completely on December 31, 2025 (and be paid within 74 days thereof), provided that Employee remains continuously employed with the successor entity until then. Provided however, in the event of Employee’s involuntary Termination of Employment without Cause during the Window Period (as defined in paragraph d.iv. below) or upon Employee’s Retirement, death or Disability, Employee shall become immediately vested in full in the restricted stock units in the successor entity awarded pursuant to this paragraph 6.a.ii.1 and paid (i) in the case of death or Disability, within 74 days of such time or (ii) in the case of Retirement or involuntary Termination of Employment without Cause, within 74 days following December 31, 2025.
| 2. | If the successor entity is not a publicly traded company as of the Early Measurement Date, an amount of cash equal to the quotient obtained from the equation in paragraph 6.a.ii.1. above. |
Any cash payment awarded under this paragraph 6.a.ii.2. will be paid to Employee as soon as administratively feasible (and no later than 74 days) following December 31, 2025, provided that Employee remains continuously employed with the successor entity until such date. Provided however, in the event of Employee’s involuntary Termination of Employment without Cause during the Window Period or upon Employee’s Retirement, death or Disability, Employee shall become vested and be paid such cash payment by the successor entity (i) in the case of death or Disability, within 74 days of such time or (ii) in the case of Retirement or involuntary Termination of Employment without Cause, within 74 days following December 31, 2025.
| b. | RSU Award. If there is Corporate Change prior to the close of the Restriction Period, all outstanding but unvested RSUs will be immediately vested in full and, along with all associated Dividend Equivalents up to the original Vesting Date, will be due and payable within 74 days following such original Vesting Date, unless the successor entity assumes all RSU Awards granted under the Plan and converts the awards to equivalent grants in the successor effective as of the Corporate Change. If the successor entity so assumes and converts all RSU Awards granted under the Plan, upon Employee’s involuntary Termination of Employment without Cause during the Window Period or upon Employee’s Retirement, death or Disability, then all outstanding but unvested RSUs (or the equivalent grant in the successor entity) and the associated Dividend Equivalents through such date will become immediately vested in full as of such event and paid (i) in the case of death or Disability, within 74 days of such time or (ii) in the case of Retirement or involuntary Termination of Employment without Cause, within 74 days following the original Vesting Date. |
| c. | Stock Option Award. In the event of a Corporate Change and Employee’s involuntary Termination of Employment without Cause, the Stock Option Award shall become exercisable immediately (whether previously exercisable) and shall remain exercisable for the three-year period following such Termination of Employment. |
| d. | Window Period means the period beginning on the date occurring six (6) months immediately prior to the date on which a Corporate Change first occurs and ending on the second anniversary of the date on which a Corporate Change occurs. |
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| 7. | Dividend Equivalents. |
| a. | The Company will pay Dividend Equivalents with respect to the PSUs when (i) the Performance Period has ended; (ii) Employee has vested in the Award; and (iii) the PSU Awarded Shares have been certified by the Committee based on actual Achievement during the Performance Period (or otherwise determined pursuant to paragraph 6.a.i. above). As soon as administratively feasible after these events (and no later than 74 days following the end of the Performance Period), the Company will pay Employee a lump-sum cash amount for PSU Award Dividend Equivalents based on the number of PSU Awarded Shares multiplied by the per share quarterly dividend payments made to stockholders of the Company’s Common Stock during the Performance Period (without any interest or compounding). Any accumulated and unpaid Dividend Equivalents attributable to PSUs that are cancelled or forfeited will not be paid and are immediately forfeited upon cancellation of the PSUs. |
| b. | The Company will pay Dividend Equivalents with respect to RSUs as soon as administratively feasible (and no later than 74 days) following the Vesting Date. The Company will make such payment in a lump sum cash amount for RSU Award Dividend Equivalents based on the number of RSUs vested multiplied by the per share quarterly dividend payments made to stockholders of the Company’s Common Stock during the Restriction Period (without any interest or compounding). Any accumulated and unpaid Dividend Equivalents attributable to RSUs that do not vest or that are cancelled or forfeited will not be paid and are immediately forfeited upon cancellation or forfeiture of the RSUs. |
| 8. | Deferral. |
| a. | The Committee may establish procedures for Employee to elect for deferral, until a time or times later than the vesting of PSU Awards, receipt of all or a portion of the shares of Common Stock deliverable under the Awards. Any such deferral must be under the terms and conditions determined in the sole discretion of the Committee (or its designee) and the Waste Management, Inc. 409A Deferral Savings Plan (“WM 409A Plan”). The Committee further retains the authority and discretion to modify and/or terminate existing deferral elections, procedures, and distribution options. Common Stock subject to a deferral election does not confer any shareholder rights to Employee unless and until the date the deferral expires and certificates representing such shares are delivered to Employee. |
| b. | No deferral of Dividend Equivalents is permitted. In the event shares of Common Stock received upon vesting of PSU Awards are deferred pursuant to a valid deferral, then the Company will pay Dividend Equivalents to Employee in cash on such deferred shares of Common Stock, as soon as administratively feasible following the payment of such dividends to stockholders of record. |
| c. | If the Committee permits deferral of the PSU Awards under this Agreement, then each provision of this Agreement shall be interpreted to permit deferral only (i) in accordance with the terms of the WM 409A Plan and (ii) as allowed in compliance with Section 409A. Any provision that would conflict with such requirements is not valid or enforceable. Employee acknowledges, without limitation, and consents that the application of Section 409A to this Agreement may require additional delay of payments otherwise payable under this Agreement or the WM 409A Plan. Employee and the Company agree to execute any instruments and take any action as reasonably may be necessary to comply with Section 409A. |
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General Terms
| 1. | Restrictions on Transfer. |
| a. | Absent prior written consent of the Committee, Awards may not be sold, assigned, transferred, pledged, or otherwise encumbered, whether voluntarily or involuntarily, by operation of law or otherwise, other than pursuant to a domestic relations order; provided, however, that the transfer of any shares of Common Stock issued under the Awards shall not be restricted by virtue of this Agreement once such shares have been paid out. |
| b. | Consistent with paragraph 1.a. above and except as provided in paragraph 3. below, no right or benefit under this Agreement shall be subject to transfer, anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, whether voluntary, involuntary, by operation of law or otherwise, and any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, or torts of the person entitled to such benefits. If Employee or his Beneficiary shall attempt to transfer, anticipate, alienate, assign, sell, pledge, encumber or charge any right or benefit hereunder (other than pursuant to a domestic relations order), or if any creditor shall attempt to subject the same to a writ of garnishment, attachment, execution sequestration, or any other form of process or involuntary lien or seizure, then such attempt shall have no effect and shall be void. |
| 2. | Fractional Shares. No fractional shares of Common Stock will be issued under the Plan or this Agreement. |
| 3. | Withholding Tax. Employee agrees that Employee is responsible for federal, state, and local tax consequences associated with the Awards (and any associated Dividend Equivalents) under this Agreement. Upon the occurrence of a taxable event with respect to any Award under this Agreement, Employee shall deliver to WM at such time, (i) such amount of money or shares of Common Stock earned or owned by Employee or (ii) if employee is an executive officer at the time of such tax event and so elects (or, otherwise, with WM’s approval), shares deliverable to Employee at such time pursuant to the applicable Award, in each case, as WM may require to meet its obligation under applicable tax laws or regulations, and, if Employee fails to do so, WM is authorized to withhold from any shares of Common Stock deliverable to Employee, cash, or other form of remuneration then or thereafter payable to Employee, any tax required to be withheld. |
| 4. | Compliance with Securities Laws. WM is not required to deliver any shares of Common Stock under this Agreement, if, in the opinion of counsel for the Company, such issuance would violate the Securities Act of 1933, any other applicable federal or state securities laws or regulations, or the requirements of any stock exchange or market system upon which the Common Stock may then be listed. Prior to the issuance of any shares, WM may require Employee (or Employee’s legal representative upon Employee’s death or disability) to enter into such written representations, warranties and agreements as WM may reasonably request in order to comply with applicable laws, including an agreement (in such form as the Committee may specify) under which Employee represents that the shares of Common Stock acquired under an Award are being acquired for investment and not with a view to sale or distribution. |
Further, WM may postpone issuing and/or delivering any Common Stock for so long as WM, in its complete and sole discretion, reasonably determines is necessary to satisfy any of the following conditions: (a) the Company completing or amending any securities registration or qualification of the Common Stock, (b) receipt of proof satisfactory to WM that a person seeking to exercise the Award after the Employee’s death is entitled to do so; (c) establishment of Employee’s compliance with any necessary representations or terms and conditions of the Plan or this Agreement, or (d) compliance with any federal, state, or local tax withholding obligations.
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| 5. | Employee to Have no Rights as a Stockholder. Employee shall have no rights as a stockholder with respect to any shares of Common Stock subject to this Award prior to the date on which Employee is recorded as the holder of such shares of Common Stock on the records of the Company, including no right to dividends declared on the Common Stock underlying the Award. Notwithstanding the foregoing, Dividend Equivalents shall be paid to Employee in accordance with and subject to the terms of paragraph 7 under “Important Award Details.” |
| 6. | Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by Employee, WM and their respective permitted successors or assigns (including personal representatives, heirs, and legatees), except that Employee may not assign any rights or obligations under this Agreement except to the extent, and in the manner, expressly permitted herein. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that WM would be required to perform it if no such succession had taken place, except as otherwise expressly provided in paragraph 6.b. under “Important Award Details.” |
| 7. | Limitation of Rights. Nothing in this Agreement or the Plan may be construed to: |
a. | give Employee any right to be awarded any further Awards other than in the sole discretion of the Committee; |
b. | give Employee or any other person any interest in any fund or in any specified asset or assets of WM (other than the Awards made by this Agreement, the related Dividend Equivalents awarded under this Agreement, and any Common Stock issuable under the terms and conditions of such Awards); or |
c. | confer upon Employee the right to continue in the employment or service of WM. |
| 8. | Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas, without reference to principles of conflict of laws. |
| 9. | Severability/Entire Agreement. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. |
| a. | Employee understands and agrees that the Awards granted under this Agreement are granted under the authority of the Plan and these Awards and this Agreement are in all ways governed by the terms and conditions of the Plan and its administrative practices and interpretations, which also include the Clawback Policy. Any inconsistency between the Agreement and the Plan shall be resolved in favor of the Plan. Employee also agrees the terms and conditions of the Plan, this Agreement and related administrative practices and interpretations control, even if there is a conflict with any other terms and conditions in any employment agreement or in any prior awards. Without limiting the generality of the foregoing, as a condition to receipt of this Award, Employee agrees that the provisions relating to vesting and/or forfeiture of this Award upon a Termination of Employment set forth in this Agreement supersede and replace any provisions relating to vesting of the Award upon termination or other event set forth in any employment agreement, offer letter or similar document. |
| b. | Employee understands and agrees that he or she is to consult with and rely upon only Employee’s own tax, legal, and financial advisors regarding the consequences and risks of this Agreement and the awards made under this Agreement. |
| c. | Except as provided in paragraph 13 below, this Agreement may not be amended except in writing (including by electronic writing) signed by all the parties to this Agreement (or their respective successors and legal representatives). The captions are not a part of the Agreement and for that reason shall have no force or effect. |
13
| 10. | No Waiver. In the event the Employee or WM fails to insist on strict compliance with any term or condition of this Agreement or fails to assert any right under this Agreement, such failure is not a waiver of that term, condition or right. |
| 11. | Covenant Requirement Essential Part of Award. An overriding condition (even if any other provision of the Plan and this Agreement are conflicting) for Employee to receive any benefit from or payment of any Award under this Agreement, is that Employee must also have entered, and abided by the terms of, an agreement containing restrictive covenants concerning limitations on Employee’s behavior following termination of employment that is satisfactory to WM. |
| 12. | Definitions. If not defined in this Agreement, capitalized terms have the meanings set forth in the Plan. |
| 13. | Compliance with Section 409A. Both WM and Employee intend that this Agreement does not result in unfavorable tax consequences to Employee under Section 409A. Accordingly, Employee consents to any amendment of this Agreement WM may reasonably make consistent to achieve that intention and WM may, disregarding any other provision in this Agreement to the contrary, unilaterally execute such amendment to this Agreement. WM shall promptly provide, or make available to, Employee a copy of any such amendment. WM agrees to make any such amendments to preserve the intended benefits to the Employee to the maximum extent possible. This paragraph does not create an obligation on the part of WM to modify this Agreement and does not guarantee that the amounts or benefits owed under the Agreement will not be subject to interest and penalties under Section 409A. Each cash and/or stock payment and/or benefit provided under the Plan and this Agreement and/or pursuant to the terms of WM’s benefit plans, programs and policies shall be considered a separate payment for purposes of Section 409A. Notwithstanding the foregoing, it is intended that Stock Option Awards are not subject to Section 409A. For purposes of Section 409A, to the extent that Employee is a “specified employee” within the meaning of the Treasury Regulations issued pursuant to Section 409A as of Employee’s separation from service and to the limited extent necessary to avoid the imputation of any tax, penalty or interest pursuant to Section 409A, notwithstanding anything to the contrary in this Agreement, no amount which is subject to Section 409A of the Code and is payable on account of Employee’s separation from service shall be paid to Employee before the date (the “Delayed Payment Date”) which is the first day of the seventh month after the Employee’s separation from service or, if earlier, the date of the Employee’s death following such separation from service. All such amounts that would, but for the immediately preceding sentence, become payable prior to the Delayed Payment Date will be accumulated and paid without interest on the Delayed Payment Date. |
| 14. | Use of Personal Data. Employee agrees to the collection, use, processing, and transfer of certain personal data, including name, salary, nationality, job title, position, social security number (or other tax identification number) and details of all past Awards and current Awards outstanding under the Plan (“Data”), for the purpose of managing and administering the Plan. Employee is not obliged to consent to such collection, use, processing, and transfer of personal data, but a refusal to provide such consent may affect the ability to participate in the Plan. WM may transfer Data among themselves or to third parties as necessary for the purpose of implementation, administration, and management of the Plan. These various recipients of Data may be located throughout the world. Employee authorizes these various recipients of Data to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering, and managing the Plan. Employee may, at any time, review Data with respect to Employee and require any necessary amendments to such Data. Employee may withdraw his or her consent to use Data herein by notifying WM in writing (according to the provisions of paragraph 15 below); however, Employee understands that by withdrawing his or her consent to use Data, Employee may affect his or her ability to participate in the Plan. |
| 15. | Notices. Any notice given by one party under this Agreement to the other shall be in writing and may be delivered personally or by mail, postage prepaid, addressed to the Secretary of the Company, at its then corporate headquarters, and Employee at Employee’s address as shown on WM’s records, or to such other address as Employee, by notice to the Company, may designate in writing from time to time. |
14
| 16. | Electronic Delivery. WM may, in its sole discretion, deliver any documents related to the Awards under this Agreement, the Plan, and/or the WM 409A Plan, by electronic means or request Employee’s consent to participate in the administration of this Agreement, the Plan, and/or the WM 409A Plan by electronic means. Employee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by WM or another third party designated by WM. |
| 17. | Binding Arbitration. Except as otherwise specifically provided herein, the Committee’s findings, calculations and determinations under this Agreement are made in the sole discretion of the Committee, and Employee expressly agrees that such determinations shall be final and not subject to dispute. In the event, however, that Employee has a right to dispute a matter hereunder (including, but not limited to, the right to dispute set forth in paragraph 5 under “Important Award Details”) or a matter directly relating to this Award under the Clawback Policy, the Company and Employee agree that such dispute shall be settled exclusively by final and binding arbitration, as governed by the Federal Arbitration Act (9 U.S.C. 1 et seq.). The arbitration proceeding, including the rendering of an award, if any, shall be administered by JAMS pursuant to its Employment Arbitration Rules and Procedures, which may be found on the JAMS Website www.jamsadr.com. All expenses associated with the arbitration shall be borne by WM; provided however, that such arbitration expenses will not include attorney fees incurred by the respective parties. Judgment on any arbitration award may be entered in any court having jurisdiction. |
| 18. | Counterparts. This Agreement may be executed in counterparts, which together shall constitute one and the same original. |
Execution
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by one of its officers thereunto duly authorized and Employee has executed this Agreement, effective as of March 1, 2024.
WASTE MANAGEMENT, INC. | Employee |
| |
15
Exhibit 22.1
GUARANTOR SUBSIDIARY
As of March 31, 2024, Waste Management Holdings, Inc. (“WM Holdings”), a Delaware corporation and a direct wholly-owned subsidiary of Waste Management, Inc. (“WMI”), has fully and unconditionally guaranteed all registered Senior Notes issued by WMI, as listed below. Additionally, WMI has fully and unconditionally guaranteed the 7.10% Senior Notes due 2026 issued by WM Holdings.
Principal |
| Interest Rate |
| Issue Date |
| Maturity Date | |
$ | 600 million | 7.00 | % | 7/17/1998 | | 7/15/2028 | |
$ | 250 million | 7.375 | % | 1/21/2000 | | 5/15/2029 | |
$ | 500 million | 7.75 | % | 1/3/2003 | | 5/15/2032 | |
$ | 600 million | 6.125 | % | 11/17/2009 | | 11/30/2039 | |
$ | 350 million | 3.50 | % | 5/8/2014 | | 5/15/2024 | |
$ | 600 million | 3.125 | % | 2/26/2015 | | 3/1/2025 | |
$ | 450 million | 3.90 | % | 2/26/2015 | | 3/1/2035 | |
$ | 750 million | 4.10 | % | 2/26/2015 | | 3/1/2045 | |
$ | 750 million | 3.15 | % | 11/8/2017 | | 11/15/2027 | |
$ | 1 billion | 4.15 | % | 5/22/2019 | | 7/15/2049 | |
$ | 500 million | | 0.75 | % | 11/17/2020 | | 11/15/2025 |
$ | 500 million | | 1.15 | % | 11/17/2020 | | 3/15/2028 |
$ | 1 billion | | 1.50 | % | 11/17/2020 | | 3/15/2031 |
$ | 500 million | | 2.50 | % | 11/17/2020 | | 11/15/2050 |
$ | 475 million | | 2.00 | % | 5/12/2021 | | 6/1/2029 |
$ | 475 million | | 2.95 | % | 5/12/2021 | | 6/1/2041 |
$ | 1 billion | | 4.15 | % | 5/12/2022 | | 4/15/2032 |
$ | 750 million | | 4.625 | % | 2/15/2023 | | 2/15/2030 |
$ | 500 million | | 4.625 | % | 2/15/2023 | | 2/15/2033 |
$ | 750 million | | 4.875 | % | 8/3/2023 | | 2/15/2029 |
$ | 1.250 billion | | 4.875 | % | 8/3/2023 | | 2/15/2034 |
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Fish, Jr., certify that:
1. I have reviewed this report on Form 10-Q of Waste Management, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a — 15(e) and 15d — 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a — 15(f) and 15d — 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ JAMES C. FISH, JR. |
| | James C. Fish, Jr. |
| | President and Chief Executive Officer |
| | |
| | |
Date: April 25, 2024 | | |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Devina A. Rankin, certify that:
1. I have reviewed this report on Form 10-Q of Waste Management, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a — 15(e) and 15d — 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a — 15(f) and 15d — 15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ DEVINA A. RANKIN |
| | Devina A. Rankin |
| | Executive Vice President and |
| | Chief Financial Officer |
| | |
Date: April 25, 2024 | | |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Waste Management, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James C. Fish, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ JAMES C. FISH, JR. |
| | James C. Fish, Jr. |
| | President and Chief Executive Officer |
| | |
April 25, 2024 | | |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Waste Management, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Devina A. Rankin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ DEVINA A. RANKIN |
| | Devina A. Rankin |
| | Executive Vice President and |
| | Chief Financial Officer |
| | |
April 25, 2024 | | |
Exhibit 95
Mine Safety Disclosures
This exhibit contains certain specified disclosures regarding mine safety required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K. Certain of our subsidiaries have permits for surface mining operations that are incidental to excavation work for landfill development.
During the quarter ended March 31, 2024, we did not receive any of the following: (a) a citation from the U.S. Mine Safety and Health Administration (“MSHA”) for a violation of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Federal Mine Safety and Health Act of 1977 (the “Mine Safety Act”); (b) an order issued under section 104(b) of the Mine Safety Act; (c) a citation or order for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section 104(d) of the Mine Safety Act; (d) a flagrant violation under section 110(b)(2) of the Mine Safety Act; or (e) an imminent danger order under section 107(a) of the Mine Safety Act. During the quarter ended March 31, 2024, CGS Services, Inc., an indirect wholly-owned subsidiary of Waste Management, Inc., was assessed penalties totaling $441 by the MSHA in connection with its Caldwell PT & ML mine in Indiana.
In addition, during the quarter ended March 31, 2024, we had no mining-related fatalities, we had no pending legal actions before the Federal Mine Safety and Health Review Commission involving a coal or other mine, and we did not receive any written notice from the MSHA involving a pattern of violations, or the potential to have such a pattern, of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under section 104(e) of the Mine Safety Act.