UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period Ended ~~September~~June 30, ~~2019~~2020

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission file number 1-12154

Waste Management, ~~Inc~~.Inc.

(Exact name of registrant as specified in its charter)


Delaware	73-1309529
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1001 Fannin Street

Houston, Texas 77002

(Address of principal executive offices)

(713) 512-6200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	WM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer ☐
Non-accelerated filer	☐	Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at ~~October 18, 2019~~July 27, 2020 was ~~424,241,200~~422,461,187 (excluding treasury shares of ~~206,041,261)~~207,821,274).

PART I.

Item 1. Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Millions, Except Share and Par Value Amounts)


	September 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
	(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,915	$	61	$	2,663	$	3,561
Accounts receivable, net of allowance for doubtful accounts of $27 and $29, respectively		2,010		1,931
Other receivables		270		344
Accounts receivable, net of allowance for doubtful accounts of $46 and $28, respectively						1,888		1,949
Other receivables, net of allowance for doubtful accounts of $2 and $1, respectively						219		370
Parts and supplies		109		102		118		106
Other assets		256		207		218		223
Total current assets		5,560		2,645		5,106		6,209
Property and equipment, net of accumulated depreciation and amortization of $18,499 and $18,264, respectively		12,805		11,942
Property and equipment, net of accumulated depreciation and amortization of $19,031 and $18,657, respectively						12,917		12,893
Goodwill		6,550		6,430		6,512		6,532
Other intangible assets, net		543		572		472		521
Restricted trust and escrow accounts		336		296		382		313
Investments in unconsolidated entities		494		406		439		483
Other assets		821		359		791		792
Total assets	$	27,109	$	22,650	$	26,619	$	27,743
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	903	$	1,037	$	904	$	1,065
Accrued liabilities		1,358		1,117		1,184		1,327
Deferred revenues		517		522		494		534
Current portion of long-term debt		211		432		3,190		218
Total current liabilities		2,989		3,108		5,772		3,144
Long-term debt, less current portion		13,147		9,594		9,598		13,280
Deferred income taxes		1,331		1,291		1,367		1,407
Landfill and environmental remediation liabilities		1,917		1,828		2,030		1,930
Other liabilities		938		553		959		912
Total liabilities		20,322		16,374		19,726		20,673
Commitments and contingencies
Equity:
Waste Management, Inc. stockholders’ equity:
Common stock, $0.01 par value; 1,500,000,000 shares authorized; 630,282,461 shares issued		6		6		6		6
Additional paid-in capital		5,026		4,993		5,040		5,049
Retained earnings		10,364		9,797		10,795		10,592
Accumulated other comprehensive income (loss)		(33)		(87)		(41)		(8)
Treasury stock at cost, 206,122,185 and 206,299,352 shares, respectively		(8,578)		(8,434)
Treasury stock at cost, 208,118,292 and 205,956,366 shares, respectively						(8,909)		(8,571)
Total Waste Management, Inc. stockholders’ equity		6,785		6,275		6,891		7,068
Noncontrolling interests		2		1		2		2
Total equity		6,787		6,276		6,893		7,070
Total liabilities and equity	$	27,109	$	22,650	$	26,619	$	27,743

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Millions, Except per Share Amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2019

2018

2019

2018
Operating revenues

$
3,967

$
3,822

$
11,609

$
11,072
Costs and expenses:





Operating

2,441

2,373

7,182

6,870
Selling, general and administrative

386

345

1,186

1,083
Depreciation and amortization

404

376

1,179

1,107
Restructuring

1

1

3

4
(Gain) loss from divestitures, asset impairments and unusual items, net

1

28

8

(14)

3,233

3,123

9,558

9,050
Income from operations

734

699

2,051

2,022
Other income (expense):



Interest expense, net

(105)

(93)

(301)

(277)
Loss on early extinguishment of debt

(1)

—

(85)

—
Equity in net losses of unconsolidated entities

(14)

(9)

(39)

(29)
Other, net

1

—

(52)

1

(119)

(102)

(477)

(305)
Income before income taxes

615

597

1,574

1,717
Income tax expense

120

99

350

325
Consolidated net income

495

498

1,224

1,392
Less: Net income (loss) attributable to noncontrolling interests

—

(1)

1

(2)
Net income attributable to Waste Management, Inc.

$
495

$
499

$
1,223

$
1,394
Basic earnings per common share

$
1.17

$
1.16

$
2.88

$
3.24
Diluted earnings per common share

$
1.16

$
1.16

$
2.86

$
3.22


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Operating revenues	$	3,561	$	3,946	$	7,290	$	7,642
Costs and expenses:
Operating		2,180		2,443		4,509		4,741
Selling, general and administrative		377		391		802		800
Depreciation and amortization		414		409		816		775
Restructuring		2		—		2		2
(Gain) loss from divestitures, asset impairments and unusual items, net		61		7		61		7
		3,034		3,250		6,190		6,325
Income from operations		527		696		1,100		1,317
Other income (expense):
Interest expense, net		(119)		(100)		(231)		(196)
Loss on early extinguishment of debt		—		(84)		—		(84)
Equity in net losses of unconsolidated entities		(14)		(16)		(40)		(25)
Other, net		1		1		1		(53)
		(132)		(199)		(270)		(358)
Income before income taxes		395		497		830		959
Income tax expense		88		115		162		230
Consolidated net income		307		382		668		729
Less: Net income (loss) attributable to noncontrolling interests		—		1		—		1
Net income attributable to Waste Management, Inc.	$	307	$	381	$	668	$	728
Basic earnings per common share	$	0.73	$	0.90	$	1.58	$	1.71
Diluted earnings per common share	$	0.72	$	0.89	$	1.57	$	1.70

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Millions)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Consolidated net income	$	495	$	498	$	1,224	$	1,392	$	307	$	382	$	668	$	729
Other comprehensive income (loss), net of tax:
Derivative instruments, net		2		2		6		6		3		2		5		4
Available-for-sale securities, net		4		9		13		8		14		4		5		9
Foreign currency translation adjustments		(17)		22		36		(33)		34		25		(42)		53
Post-retirement benefit obligations, net		—		—		(1)		—
Post-retirement benefit obligation, net										(1)		—		(1)		(1)
Other comprehensive income (loss), net of tax		(11)		33		54		(19)		50		31		(33)		65
Comprehensive income		484		531		1,278		1,373		357		413		635		794
Less: Comprehensive income (loss) attributable to noncontrolling interests		—		(1)		1		(2)
Less: Comprehensive loss attributable to noncontrolling interests										—		1		—		1
Comprehensive income attributable to Waste Management, Inc.	$	484	$	532	$	1,277	$	1,375	$	357	$	412	$	635	$	793

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Millions)

(Unaudited)

Nine Months Ended

September 30,


2019

2018
Cash flows from operating activities:




Consolidated net income

$
1,224

$
1,392
Adjustments to reconcile consolidated net income to net cash provided by operating activities:


Depreciation and amortization

1,179

1,107
Deferred income tax expense (benefit)

29

(32)
Interest accretion on landfill liabilities

72

71
Provision for bad debts

27

35
Equity-based compensation expense

62

63
Net gain on disposal of assets

(19)

(21)
(Gain) loss from divestitures, asset impairments and other, net

79

(14)
Equity in net losses of unconsolidated entities, net of dividends

39

29
Loss on early extinguishment of debt

85

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




Receivables

(2)

43
Other current assets

(52)

(22)
Other assets

7

(3)
Accounts payable and accrued liabilities

213

177
Deferred revenues and other liabilities

(91)

(167)
Net cash provided by operating activities

2,852

2,658
Cash flows from investing activities:




Acquisitions of businesses, net of cash acquired

(513)

(342)
Capital expenditures

(1,532)

(1,240)
Proceeds from divestitures of businesses and other assets (net of cash divested)

29

106
Other, net

(80)

(30)
Net cash used in investing activities

(2,096)

(1,506)
Cash flows from financing activities:




New borrowings

4,558

174
Debt repayments

(502)

(338)
Premiums paid on early extinguishment of debt

(84)

—
Net commercial paper borrowings (repayments)

(1,001)

523
Common stock repurchase program

(248)

(750)
Cash dividends

(658)

(605)
Exercise of common stock options

60

45
Tax payments associated with equity-based compensation transactions

(32)

(28)
Other, net

(13)

(36)
Net cash provided by (used in) financing activities

2,080

(1,015)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents

1

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

2,837

137
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

183

293
Cash, cash equivalents and restricted cash and cash equivalents at end of period

$
3,020

$
430

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

Cash and cash equivalents

$
2,915

$
83
Restricted cash and cash equivalents included in other current assets

31

70
Restricted cash and cash equivalents included in restricted trust and escrow accounts

74

277
Cash, cash equivalents and restricted cash and cash equivalents at end of period

$
3,020

$
430


	Six Months Ended
	June 30,
	2020		2019
Cash flows from operating activities:
Consolidated net income	$	668	$	729
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		816		775
Deferred income tax benefit		(35)		(12)
Interest accretion on landfill liabilities		49		47
Provision for bad debts		36		19
Equity-based compensation expense		23		43
Net gain on disposal of assets		(7)		(5)
(Gain) loss from divestitures, asset impairments and other, net		68		78
Equity in net losses of unconsolidated entities, net of dividends		33		25
Loss on early extinguishment of debt		—		84
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Receivables		185		19
Other current assets		(1)		(5)
Other assets		14		4
Accounts payable and accrued liabilities		(171)		127
Deferred revenues and other liabilities		(57)		(28)
Net cash provided by operating activities		1,621		1,900
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired		(1)		(440)
Capital expenditures		(895)		(1,049)
Proceeds from divestitures of businesses and other assets (net of cash divested)		15		20
Other, net		(37)		(96)
Net cash used in investing activities		(918)		(1,565)
Cash flows from financing activities:
New borrowings		—		3,971
Debt repayments		(705)		(385)
Premiums paid on early extinguishment of debt		—		(84)
Net commercial paper borrowings (repayments)		—		(1,001)
Common stock repurchase program		(402)		(248)
Cash dividends		(466)		(440)
Exercise of common stock options		42		45
Tax payments associated with equity-based compensation transactions		(34)		(30)
Other, net		(10)		(6)
Net cash (used in) provided by financing activities		(1,575)		1,822
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents		(3)		2
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		(875)		2,159
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		3,647		183
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	2,772	$	2,342

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents at end of period:
Cash and cash equivalents	$	2,663	$	2,250
Restricted cash and cash equivalents included in other current assets		41		18
Restricted cash and cash equivalents included in restricted trust and escrow accounts		68		74
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	2,772	$	2,342

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In Millions, Except Shares in Thousands)

(Unaudited)


			Waste Management, Inc. Stockholders’ Equity																Waste Management, Inc. Stockholders’ Equity
										Accumulated																Accumulated
						Additional				Other												Additional				Other
			Common Stock			Paid-In		Retained		Comprehensive		Treasury Stock			Noncontrolling				Common Stock			Paid-In		Retained		Comprehensive		Treasury Stock			Noncontrolling
	Total		Shares	Amounts		Capital		Earnings		Income (Loss)		Shares	Amounts		Interests		Total		Shares	Amounts		Capital		Earnings		Income (Loss)		Shares	Amounts		Interests
Three Months Ended September 30:
Three Months Ended June 30:
2020
Balance, March 31, 2020																	$	6,745	630,282	$	6	$	5,026	$	10,718	$	(91)	(208,287)	$	(8,916)	$	2
Consolidated net income																		307	—		—		—		307		—	—		—		—
Other comprehensive income (loss), net of tax																		50	—		—		—		—		50	—		—		—
Cash dividends declared of $0.545 per common share																		(230)	—		—		—		(230)		—	—		—		—
Equity-based compensation transactions, net																		21	—		—		14		—		—	169		7		—
Common stock repurchase program																		—	—		—		—		—		—	—		—		—
Other, net																		—	—		—		—		—		—	—		—		—
Balance, June 30, 2020																	$	6,893	630,282	$	6	$	5,040	$	10,795	$	(41)	(208,118)	$	(8,909)	$	2

2019
Balance, June 30, 2019	$	6,467	630,282	$	6	$	4,962	$	10,088	$	(22)	(206,482)	$	(8,568)	$	1
Balance, March 31, 2019																	$	6,417	630,282	$	6	$	4,978	$	9,924	$	(53)	(205,556)	$	(8,440)	$	2
Consolidated net income		495	—		—		—		495		—	—		—		—		382	—		—		—		381		—	—		—		1
Other comprehensive income (loss), net of tax		(11)	—		—		—		—		(11)	—		—		—		31	—		—		—		—		31	—		—		—
Cash dividends declared of $0.5125 per common share		(218)	—		—		—		(218)		—	—		—		—		(217)	—		—		—		(217)		—	—		—		—
Equity-based compensation transactions, net		53	—		—		28		(1)		—	613		26		—		36	—		—		20		—		—	387		16		—
Common stock repurchase program		—	—		—		36		—		—	(254)		(36)		—		(180)	—		—		(36)		—		—	(1,314)		(144)		—
Other, net		1	—		—		—		—		—	1		—		1		(2)	—		—		—		—		—	1		—		(2)
Balance, September 30, 2019	$	6,787	630,282	$	6	$	5,026	$	10,364	$	(33)	(206,122)	$	(8,578)	$	2

2018
Balance, June 30, 2018	$	6,056	630,282	$	6	$	4,935	$	9,166	$	(49)	(201,906)	$	(8,004)	$	2
Consolidated net income		498	—		—		—		499		—	—		—		(1)
Other comprehensive income (loss), net of tax		33	—		—		—		—		33	—		—		—
Cash dividends declared of $0.465 per common share		(199)	—		—		—		(199)		—	—		—		—
Equity-based compensation transactions, net		52	—		—		32		(2)		—	557		22		—
Common stock repurchase program		(200)	—		—		(40)		—		—	(1,807)		(160)		—
Divestiture of noncontrolling interest		—	—		—		—		—		—	—		—		—
Other, net		1	—		—		—		—		—	(1)		—		1
Balance, September 30, 2018	$	6,241	630,282	$	6	$	4,927	$	9,464	$	(16)	(203,157)	$	(8,142)	$	2
Balance, June 30, 2019																	$	6,467	630,282	$	6	$	4,962	$	10,088	$	(22)	(206,482)	$	(8,568)	$	1

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ─ (Continued)

(In Millions, Except Shares in Thousands)

(Unaudited)


			Waste Management, Inc. Stockholders’ Equity																Waste Management, Inc. Stockholders’ Equity
										Accumulated																Accumulated
						Additional				Other												Additional				Other
			Common Stock			Paid-In		Retained		Comprehensive		Treasury Stock			Noncontrolling				Common Stock			Paid-In		Retained		Comprehensive		Treasury Stock			Noncontrolling
	Total		Shares	Amounts		Capital		Earnings		Income (Loss)		Shares	Amounts		Interests		Total		Shares	Amounts		Capital		Earnings		Income (Loss)		Shares	Amounts		Interests
Nine Months Ended September 30:
2019
Balance, December 31,��2018	$	6,276	630,282	$	6	$	4,993	$	9,797	$	(87)	(206,299)	$	(8,434)	$	1
Six Months Ended June 30:
2020
Balance, December 31, 2019																	$	7,070	630,282	$	6	$	5,049	$	10,592	$	(8)	(205,956)	$	(8,571)	$	2
Adoption of new accounting standard																		(2)	—		—		—		(2)		—	—		—		—
Consolidated net income		1,224	—		—		—		1,223		—	—		—		1		668	—		—		—		668		—	—		—		—
Other comprehensive income (loss), net of tax		54	—		—		—		—		54	—		—		—		(33)	—		—		—		—		(33)	—		—		—
Cash dividends declared of $1.5375 per common share		(658)	—		—		—		(658)		—	—		—		—
Cash dividends declared of $1.09 per common share																		(466)	—		—		—		(466)		—	—		—		—
Equity-based compensation transactions, net		135	—		—		33		2		—	2,421		100		—		58	—		—		(9)		3		—	1,523		64		—
Common stock repurchase program		(244)	—		—		—		—		—	(2,247)		(244)		—		(402)	—		—		—		—		—	(3,687)		(402)		—
Other, net		—	—		—		—		—		—	3		—		—		—	—		—		—		—		—	2		—		—
Balance, September 30, 2019	$	6,787	630,282	$	6	$	5,026	$	10,364	$	(33)	(206,122)	$	(8,578)	$	2
Balance, June 30, 2020																	$	6,893	630,282	$	6	$	5,040	$	10,795	$	(41)	(208,118)	$	(8,909)	$	2

2018
Balance, December 31, 2017	$	6,042	630,282	$	6	$	4,933	$	8,588	$	8	(196,964)	$	(7,516)	$	23
Adoption of new accounting standards		80	—		—		—		85		(5)	—		—		—
2019
Balance, December 31, 2018																	$	6,276	630,282	$	6	$	4,993	$	9,797	$	(87)	(206,299)	$	(8,434)	$	1
Consolidated net income		1,392	—		—		—		1,394		—	—		—		(2)		729	—		—		—		728		—	—		—		1
Other comprehensive income (loss), net of tax		(19)	—		—		—		—		(19)	—		—		—		65	—		—		—		—		65	—		—		—
Cash dividends declared of $1.395 per common share		(605)	—		—		—		(605)		—	—		—		—
Cash dividends declared of $1.025 per common share																		(440)	—		—		—		(440)		—	—		—		—
Equity-based compensation transactions, net		120	—		—		34		2		—	2,181		84		—		82	—		—		5		3		—	1,808		74		—
Common stock repurchase program		(750)	—		—		(40)		—		—	(8,375)		(710)		—		(244)	—		—		(36)		—		—	(1,993)		(208)		—
Divestiture of noncontrolling interest		(19)	—		—		—		—		—	—		—		(19)
Other, net		—	—		—		—		—		—	1		—		—		(1)	—		—		—		—		—	2		—		(1)
Balance, September 30, 2018	$	6,241	630,282	$	6	$	4,927	$	9,464	$	(16)	(203,157)	$	(8,142)	$	2
Balance, June 30, 2019																	$	6,467	630,282	$	6	$	4,962	$	10,088	$	(22)	(206,482)	$	(8,568)	$	1

See Notes to Condensed Consolidated Financial Statements.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The financial statements presented in this report represent the consolidation of Waste Management, Inc., a Delaware corporation; its wholly-owned and majority-owned subsidiaries; and certain variable interest entities for which Waste Management, Inc. or its subsidiaries are the primary beneficiaries as described in Note ~~14.~~13. Waste Management, Inc. is a holding company and all operations are conducted by its subsidiaries. When the terms “the Company,” “we,” “us” or “our” are used in this document, those terms refer to Waste Management, Inc., its consolidated subsidiaries and consolidated variable interest entities. When we use the term “WM,” we are referring only to Waste Management, Inc., the parent holding company.

We are North America’s leading provider of comprehensive waste management environmental services. We partner with our residential, commercial, industrial and municipal customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provide collection, transfer, disposal, and recycling and resource recovery services. Through our subsidiaries, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the United States (“U.S.”).

We evaluate, oversee and manage the financial performance of our Solid Waste business subsidiaries through our 17 Areas. We also provide additional services that are not managed through our Solid Waste business, which are presented in this report as “Other.” Additional information related to our segments is included in Note 8.7.

The Condensed Consolidated Financial Statements as of ~~September~~June 30, ~~2019~~2020 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are unaudited. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, comprehensive income, cash flows, and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The financial statements presented herein should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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

Revenue Recognition

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

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Contract Acquisition Costs

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

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had ~~$150~~$159 million and ~~$145~~$153 million, respectively, of deferred contract costs, of which ~~$115~~$117 million ~~and $109 million, respectively,~~at each date was related to deferred sales incentives. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we amortized $6 million and ~~$17~~$11 million of sales incentives to selling, general and administrative expense, and $4$3 million and ~~$15~~$5 million of other contract acquisition costs as a reduction in revenue, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we amortized $6 million and ~~$17~~$11 million of sales incentives to selling, general and administrative expense, and $8$5 million and ~~$27~~$11 million of other contract acquisition costs as a reduction in revenue, respectively.

Leases

Amounts for our operating lease right-of-use assets are recorded in long-term other assets in our Condensed Consolidated Balance Sheets. 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 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 our restricted trust and escrow accounts, and accounts receivable. We make efforts to control our exposure to credit risk associated with these instruments by (i) placing our assets and other financial interests with a diverse group of credit-worthy financial institutions; (ii) holding high-quality financial instruments while limiting investments in any one instrument and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures, although generally we do not have collateral requirements for credit extensions. We also control our exposure associated with trade receivables by discontinuing service, to the extent allowable, to non-paying customers. However, our overall credit risk associated with trade receivables is limited due to the large number and diversity of customers we serve.

Adoption of New Accounting ~~Standard~~Standards

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

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

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

~~New Accounting Standard Pending Adoption~~

~~Financial Instrument Credit Losses —~~ ~~In June 2016, the FASB issued ASU~~ 2016-13 associated with the measurement of credit losses on financial instruments. On January 1, 2020, we adopted this ASU using the modified retrospective transition method. The amended guidance ~~replaces~~replaced the ~~current~~previous incurred loss impairment methodology of recognizing credit losses when a loss is probable, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. This expected loss model generally results in earlier recognition of an allowance for losses. We recognized a net $2 million after tax decrease to retained earnings as of January 1, 2020 for the cumulative impact of adopting the amended guidance.

Our receivables, which are recorded when billed, when services are performed or when cash is advanced, are claims against third parties that will generally be settled in cash. The carrying value of our receivables, net of the allowance for

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

doubtful accounts, represents the estimated net realizable value. Past-due receivable balances are written off when our internal collection efforts have been unsuccessful. Also, we recognize interest income on long-term interest-bearing notes receivable as the interest accrues under the terms of the notes. We no longer accrue interest once the notes are deemed uncollectible.

For trade receivables the Company relies upon, among other factors, historical loss trends, the age of outstanding receivables, and existing as well as expected economic conditions. Due to the adoption of ASU 2016-13, we recognized a $1 million pre-tax decrease to our allowance for doubtful accounts on trade receivables. We determined that all of our trade receivables share similar risk characteristics. We monitor our credit exposure on an ongoing basis and assess whether assets in the pool continue to display similar risk characteristics.

In January 2020, a novel strain of coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern and subsequently declared a global pandemic in March 2020. Throughout the COVID-19 pandemic, the Company has proactively taken steps to put our employees’ and customers’ needs first and we continue to work with the appropriate regulatory agencies to ensure we can provide our essential waste services safely and efficiently. With this in mind, we have extended payment terms and postponed discontinuing service for customers who have been negatively impacted by the COVID-19 pandemic which has contributed to an increase in the aging of outstanding balances.

As of June 30, 2020, we had $1,888 million of trade receivables, net of allowance of $46 million. The allowance for doubtful accounts has increased by $18 million during 2020, largely due to the COVID-19 pandemic. Based on an aging analysis as of June 30, 2020, approximately 85% of our trade receivables were outstanding less than 60 days.

The ~~amended guidance is effective~~following table reflects the activity in our allowance for doubtful accounts of trade receivables for the six months ended June 30 (in millions):


	2020		2019
Balance as of January 1,	$	28	$	29
Adoption of new accounting standard		(1)		—
Additions charged to expense		36		19
Accounts written-off, net of recoveries		(16)		(23)
Acquisitions, divestitures and other, net		(1)		3
Balance as of June 30,	$	46	$	28

For other receivables as well as loans and other instruments, the Company relies primarily on credit ratings and associated default rates based on the maturity of the instrument. All receivables, as well as other instruments, are adjusted for our expectation of future market conditions and trends. Due to the adoption of ASU 2016-13, we recognized a $4 million pre-tax increase to our allowance for doubtful accounts on notes and other receivables. As of June 30, 2020, we had $386 million of notes and other receivables, net of allowance of $4 million. Based on an aging analysis as of June 30, 2020, approximately 55% of our other receivables were due within 12 months or less.

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

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Guarantor Financial Information— In March 2020, the SEC adopted final rules that simplify the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities (which we previously included within the notes to our financial statements included in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q) if certain conditions are met. The disclosure requirements, as amended, are now located in newly-created Rules 13-01 and 13-02 of Regulation S-X and are generally effective for filings on or after January 4, 2021, with early adoption permitted. We early adopted the new disclosure requirements effective as of April 1, 2020 and are providing the summarized financial information and related disclosures in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

Reclassifications

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

2. Landfill and Environmental Remediation Liabilities

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


	September 30, 2019						December 31, 2018						June 30, 2020						December 31, 2019
			Environmental						Environmental						Environmental						Environmental
	Landfill		Remediation		Total		Landfill		Remediation		Total		Landfill		Remediation		Total		Landfill		Remediation		Total
Current (in accrued liabilities)	$	114	$	28	$	142	$	143	$	26	$	169	$	108	$	26	$	134	$	138	$	27	$	165
Long-term		1,706		211		1,917		1,617		211		1,828		1,814		216		2,030		1,717		213		1,930
	$	1,820	$	239	$	2,059	$	1,760	$	237	$	1,997	$	1,922	$	242	$	2,164	$	1,855	$	240	$	2,095

The changes to landfill and environmental remediation liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are reflected in the table below (in millions):


			Environmental				Environmental
	Landfill		Remediation		Landfill		Remediation
December 31, 2018	$	1,760	$	237
December 31, 2019					$	1,855	$	240
Obligations incurred and capitalized		54		—		40		—
Obligations settled		(80)		(16)		(47)		(11)
Interest accretion		72		4		49		1
Revisions in estimates and interest rate assumptions (a)		10		14
Revisions in estimates and interest rate assumptions (a) (b)						27		12
Acquisitions, divestitures and other adjustments		4		—		(2)		—
September 30, 2019	$	1,820	$	239
June 30, 2020					$	1,922	$	242

(a)

The amount reported for our landfill liabilities includes (i) a $10 million increase in estimated construction costs for capping at certain landfills and (ii) an increase of $8 million due to a business decision to close one of our landfills, which resulted in the acceleration of the expected timing of capping, closure and post-closure activities. This business decision also resulted in an impairment that is discussed in Note 9.

(b)	The amount reported for our environmental remediation liabilities includes an increase of $8$12 million due to a decrease in the risk-free discount rate used to measure our liabilities from ~~2.75%~~1.75% at December 31, ~~2018~~2019 to ~~2.0%~~0.75% at ~~September~~June 30, ~~2019.~~2020.

At several of our landfills, we provide financial assurance by depositing cash into restricted trust funds or escrow accounts for purposes of settling ~~our~~ 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 14 for additional information related to these trusts.~~

910

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Generally, these trust funds are established to comply with statutory requirements and operating agreements. See Note 13 for additional information related to these trusts.

3. Debt and Interest Rate Derivatives

The following table summarizes the major components of debt as of each balance sheet date (in millions) and provides the maturities and interest rate ranges of each major category as of ~~September~~June 30, ~~2019:~~2020:


	September 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
$2.75 billion revolving credit facility, maturing June 2023 (weighted average interest rate of 3.1% as of December 31, 2018)	$	—	$	11
Commercial paper program (weighted average interest rate of 2.9% as of December 31, 2018)		—		990
Senior notes, maturing through 2049, interest rates ranging from 2.4% to 7.75% (weighted average interest rate of 3.9% as of September 30, 2019 and 4.3% as of December 31, 2018)		9,965		6,222
Canadian senior notes, maturing September 2026, interest rate of 2.6%		377		—
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 1.35% to 4.3% (weighted average interest rate of 2.3% as of September 30, 2019 and 2.35% as of December 31, 2018)		2,409		2,388
Financing leases and other, maturing through 2071, interest rates up to 9%		692		467
Senior notes, maturing through 2049, interest rates ranging from 2.4% to 7.75% (weighted average interest rate of 3.9% as of June 30, 2020 and December 31, 2019)					$	9,365	$	9,965
Canadian senior notes, C$500 million maturing September 2026, interest rate of 2.6%						368		385
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 0.1% to 4.3% (weighted average interest rate of 2.1% as of June 30, 2020 and 2.3% as of December 31, 2019)						2,471		2,523
Financing leases and other, maturing through 2071, weighted average interest rate of 4.75%						664		710
Debt issuance costs, discounts and other		(85)		(52)		(80)		(85)
		13,358		10,026		12,788		13,498
Current portion of long-term debt		211		432		3,190		218
	$	13,147	$	9,594	$	9,598	$	13,280

Debt Classification

May 2019 Senior Notes —As of ~~September~~June 30, 2020, we had $3.0 billion of senior notes due 2024, 2026, 2029 and 2039 with a special mandatory redemption feature (the “SMR Notes”). The SMR Notes were issued in May 2019 with the intention of paying a portion of the consideration related to our pending acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”), which is discussed further in Note 8. Pursuant to the terms of the SMR Notes, we were required to redeem all of such outstanding notes equal to 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest, as a result of the acquisition not being completed by July 14, 2020. Accordingly, on July 15, 2020, the Company provided notice of the special mandatory redemption, and the redemption was completed on July 20, 2020. As of June 30, 2020, we classified the SMR Notes, net of $22 million of related unamortized discounts and deferred issuance costs, as current obligations.

Other Debt — As of June 30, 2020, in addition to the SMR Notes, net of $22 million of related unamortized discounts and deferred issuance costs, discussed above, we had $1.3 billion of debt maturing within the next 12 months, including (i) ~~$600~~$400 million of ~~4.75%~~4.60% senior notes that mature in ~~June 2020;~~March 2021; (ii) ~~$529~~$734 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities, and (iii) ~~$211~~$212 million of other debt with scheduled maturities within the next 12 months, including ~~$124~~$106 million of tax-exempt bonds. As of ~~September~~June 30, ~~2019,~~2020, we have classified $1.1 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 ~~$2.75~~$3.5 billion long-term U.S. and Canadian revolving credit facility (“$~~2.75~~3.5 billion revolving credit facility”), as discussed below. The remaining ~~$211~~$212 million is classified as current obligations.

As of ~~September~~June 30, ~~2019,~~2020, we also ~~have $154~~had $108 million of variable-rate tax-exempt bonds ~~that are~~with long-term scheduled maturities supported by letters of credit under our ~~$2.75~~$3.5 billion revolving credit facility. The interest rates on our variable-rate tax-exempt bonds are generally reset on either a daily or weekly basis through a remarketing process. All recent tax-exempt bond remarketings have successfully placed Company bonds with investors at market-driven rates and we currently expect future remarketings to be successful. However, if the remarketing agent is unable to remarket our bonds, the remarketing

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

agent can put the bonds to us. In the event of a failed remarketing, we have the availability under our ~~$2.75~~$3.5 billion revolving credit facility to fund these bonds until they are remarketed successfully. Accordingly, we have ~~also~~ classified ~~these borrowings~~the $108 million of variable-rate tax-exempt bonds with maturities of more than one year as long-term in our Condensed Consolidated Balance Sheet as of ~~September~~June 30, ~~2019.~~2020.

Access to and Utilization of Credit Facilities and Commercial Paper Program

$~~2.75~~3.5 Billion Revolving Credit Facility — Our ~~$2.75~~$3.5 billion revolving credit facility provides us with credit capacity to be used for ~~either~~ cash borrowings, or to support letters of credit orand to support our commercial ~~paper.~~paper program. The rates we pay for outstanding U.S. or Canadian loans are generally based on LIBOR or CDOR, respectively, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. As of ~~September~~June 30, ~~2019,~~2020, we had 0

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

outstanding borrowings under this facility. We had ~~$412~~$362 million of letters of credit issued which were supported by this facility, leaving unused and available credit capacity of ~~$2.3~~$3.1 billion as of ~~September~~June 30, ~~2019.~~2020. WM Holdings, a wholly-owned subsidiary of WM, guarantees all of the obligations under the ~~$2.75~~$3.5 billion revolving credit facility.

Commercial Paper Program — We have a commercial paper program that enables us to borrow funds for up to 397 days at competitive interest rates. The rates we pay for outstanding borrowings are based on the term of the notes. The commercial paper program is fully supported by our ~~$2.75~~$3.5 billion revolving credit facility. As of ~~September~~June 30, ~~2019,~~2020, we had 0 outstanding borrowings under our commercial paper program.

Other Letter of Credit Facilities — As of ~~September~~June 30, ~~2019,~~2020, we utilized ~~$544~~$528 million of other letter of credit facilities, which are both committed and uncommitted, with terms maturing through ~~December 2020.~~June 2021.

Debt Borrowings and Repayments

~~$2.75~~ ~~Billion Revolving Credit Facility~~Senior Notes — During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we repaid ~~C$15 million, or $11~~$600 million of ~~Canadian borrowings under our $2.75 billion revolving credit facility~~4.75% senior notes that matured in June 2020 with available cash.

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

●

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

●

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

●

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

●

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

●

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

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

●

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

●

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

●

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

●

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

●

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

We used a portion of the proceeds to repay our commercial paper borrowings as discussed further below. We intend to use the remaining net proceeds to pay a portion of the consideration related to our pending acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) which is discussed further in Note 9, and for general corporate purposes. The newly-issued senior notes due 2024, 2026, 2029 and 2039 include a special mandatory redemption feature, which provides that if the acquisition of Advanced Disposal is not completed on or prior to July 14, 2020, or if, prior to such date, the Merger Agreement is terminated for any reason, we will be required to redeem all of the outstanding notes equal to 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest on the principal amount of such notes.

Canadian Senior Notes — ~~In September 2019, Waste Management of Canada Corporation, an indirect wholly-owned subsidiary of WM, issued C$500~~The $17 million ~~or $377 million, of 2.6% senior notes due September 23, 2026, all of which are fully and unconditionally guaranteed on a senior unsecured basis by WM and WM Holdings. The net proceeds from~~decrease during the ~~debt issuance were C$496 million, or $373 million, which we intend to use for general corporate purposes.~~

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Commercial Paper Program~~ ~~— During the nine~~six months ended ~~September~~June 30, ~~2019, we made net cash repayments of $1.0 billion (net of~~2020 is due to decreases in the related discount on issuance). During the first quarter of 2019, we had net cash borrowings of $357 million (net of the related discount on issuance), which were primarily used to support our acquisition of Petro Waste Environmental LP (“Petro Waste”), which is discussed further in Note 9, and for general corporate purposes. In the second quarter of 2019, we repaid the outstanding balance with proceeds from the May 2019 issuance of senior notes discussed above.Canadian currency translation rate.

Tax-Exempt Bonds — ~~We issued $115 million of new tax-exempt bonds in 2019. The proceeds from~~During the issuance of these bonds were deposited directly into a restricted trust fund and may only be used for the specific purpose for which the money was raised, which is generally to finance expenditures for landfill and solid waste disposal facility construction and development. In the third quarter of 2019, we elected to refund and reissue $99 million of tax-exempt bonds which resulted in the recognition of a $1 million loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations. Additionally, during the ninesix months ended ~~September~~June 30, ~~2019,~~2020, we repaid ~~$94~~$52 million of our tax-exempt bonds with available cash.

Financing Leases and Other — The ~~increase in~~decrease during the six months ended June 30, 2020 is due to $53 million of cash repayments primarily related to our federal low-income housing investments, financing leases and other ~~debt~~ obligations, ~~during the nine months ended September 30, 2019 is primarily related to (i) our new federal low-income housing investment discussed in Note 5, which increased our debt obligations~~partially offset by ~~$140 million and (ii)~~ an increase of ~~$122~~$7 million ~~mainly attributable to~~associated with non-cash financing arrangements. ~~These increases were offset by~~

Interest Rate Derivatives

During the first half of 2020, we entered into treasury rate locks with a ~~net decrease~~total notional value of ~~$37~~$400 million ~~primarily due net~~to secure an underlying interest rate in anticipation of a debt issuance previously anticipated in the second quarter of 2020. We designated our treasury locks as cash ~~repayments~~flow hedges. In June 2020, we terminated these treasury rate locks and upon termination received $1 million in cash. We are now evaluating a potential debt issuance to occur during the second half of the year, subject to market conditions and other considerations. As we currently believe that a debt ~~at maturity.~~

~~4. Leases~~

~~Our operating lease activities primarily consist~~issuance in 2020 is still probable to occur, the gain associated with these treasury rate locks has been deferred as a component of ~~leases for real estate, landfills~~“Accumulated other comprehensive income” and operating equipment. Our financing lease activities primarily consist of leases for operating equipment, railcars and landfill assets. Leases with an initial term of 12 months or less, which are not expectedwill be amortized to ~~be renewed beyond one year, are not recorded on the balance sheet and are recognized as lease~~interest expense ~~on a straight-line basis~~ over the lease term. Most leases include one or more options to renew, with renewal terms generally ranging from one to 10 years. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchasedebt term once the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments based on usage and other lease agreements include rental payments adjusted periodically for inflation; these payments are treated as variable lease payments. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. issuance occurs.

~~When~~All financial statement impacts associated with these financial hedges were immaterial as of and for the ~~implicit interest rate is not readily available for~~three and six months ended June 30, 2020. There was no significant ineffectiveness associated with our ~~operating leases, we discount future~~ cash ~~flows of~~flow hedges during the ~~remaining lease payments using the current interest rate that would be paid to borrow on collateralized debt over a similar term, or incremental borrowing rate, at the commencement date.~~

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Leases

Classification

September 30, 2019
Assets

Long-term:

Operating

Other assets

$
461
Financing

Property and equipment, net of accumulated depreciation and amortization

345
Total lease assets

$
806

Liabilities

Current:

Operating

Accrued liabilities

$
91
Financing

Current portion of long-term debt

33
Long-term:

Operating

Other liabilities

387
Financing

Long-term debt, less current portion

293
Total lease liabilities

$
804

~~Our operating lease expense for the~~ three ~~and nine~~or six months ended ~~September~~June 30, ~~2019 was $32 million~~2020. Refer to Note 10 for information regarding the impacts of our cash flow derivatives on our comprehensive income and ~~$104 million, respectively, and is included in operating and selling, general and administrative expenses in our Condensed Consolidated Statement~~results of Operations. Our financing lease expense for the three and nine months ended September 30, 2019 was $11 million and $36 million, respectively, and is included in depreciation and amortization expense and interest expense, net in our Condensed Consolidated Statement of Operations.

~~Minimum contractual obligations for our leases (undiscounted) as of September 30, 2019 are as follows (in millions):~~

Operating

Financing
2019 (excluding nine months ended September 30, 2019)

$
22

$
12
2020

65

42
2021

59

40
2022

59

39
2023

51

38
Thereafter

416

273
Total lease payments

$
672

$
444
Less: interest

(194)

(118)
Discounted lease liabilities

$
478

$
326

Cash paid for our operating and financing leases was $66 million and $27 million, respectively, for the nine months ended September 30, 2019. Right-of-use assets obtained in exchange for lease obligations for our operating and financing leases were $146 million and $114 million, respectively, for the nine months ended September 30, 2019.operations.

As of September 30, 2019, the weighted average remaining lease terms of our operating and financing leases were 16 years and 14 years, respectively. The weighted average discount rates used to determine the lease liabilities as of September 30, 2019 for our operating and financing leases were 3.51% and 4.09%, respectively.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

5.4. Income Taxes

Our effective income tax rate was ~~19.4%~~22.2% and ~~22.2%~~19.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, compared with ~~16.6%~~23.3% and ~~18.9%~~24.0% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. The decrease in our effective income tax rate when comparing the current and prior year periods was primarily driven by (i) a decrease in pre-tax income in 2020, which increased the effective tax rate impact of our federal tax credits, and to a lesser extent; (ii) $52 million non-cash impairment charge recognized in 2019 that was not deductible for tax purposes and (iii) excess tax benefits associated with equity-based compensation, which were slightly higher in 2020 than in the prior year. These items are discussed further below. We evaluate our effective income tax rate at each interim period and adjust it as facts and circumstances warrant.

Investments Qualifying for Federal Tax Credits — We have significant financial interests in entities established to invest in and manage low-income housing ~~properties and a refined coal facility. On August 28, 2019 we acquired an additional noncontrolling interest in a limited liability company established to invest in and manage low-income housing~~ properties. ~~Our consideration for this investment totaled $160 million, which was comprised of a $140 million note payable and an initial cash payment of $20 million.~~ We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments ~~and the coal facility’s refinement processes~~ qualify for federal tax credits that we expect to realize through 2030 under Section 42 ~~through 2024 under~~or Section 45D ~~and through~~of the ~~end of 2019~~Internal Revenue Code. We also held a residual financial interest in an entity that owns a refined coal facility that qualified for federal tax credits under Section 45 of the Internal Revenue ~~Code.~~Code through 2019. The entity sold the majority of its assets in the first quarter of 2020, which resulted in a $7 million non-cash impairment of our investment at that time. 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 inwithin our Condensed Consolidated Statements of Operations.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized ~~$11~~$17 million and ~~$32~~$43 million (including the $7 million impairment of the refined coal facility noted above for the six-month period) of net losses and a reduction in our income tax expense of ~~$36~~$17 million and ~~$69~~$41 million, respectively, primarily due to tax credits realized from these investments. In addition, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized interest expense of $2$3 million and $6 million, respectively, associated with our investments in low-income housing properties.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recognized $5$12 million and ~~$17~~$21 million of net losses and a reduction in our income tax expense of $18 million and ~~$40~~$33 million, respectively, primarily due to tax credits realized from these investments. ~~Interest~~In addition, during the three and six months ended June 30, 2019, we recognized interest expense of $2 million and $4 million, respectively, associated with our investments in low-income housing ~~properties was not material for the three and nine months ended September 30, 2018.~~properties.

See Note 1413 for additional information related to these unconsolidated variable interest entities.

Equity-Based Compensation — During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized a reduction in income tax expense of $5$2 million and ~~$22~~$23 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards compared with $3$5 million and ~~$15~~$17 million, respectively, for the comparable prior year periods.

~~Adjustments to Accruals and Related Deferred Taxes~~Tax Implications of Impairments — ~~During~~We recognized a $52 million non-cash impairment charge in the first quarter of 2019 which was not deductible for tax purposes. The non-cash impairment charges recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, adjustments to our accruals and related deferred taxes due to the filing of our 2018 income~~2020 are deductible for tax ~~returns and changes in state and foreign laws resulted in a reduction in our income tax expense of $13 million compared with $27 million and $35 million, respectively,~~purposes. See Note 9 for ~~the comparable prior year periods.~~

~~Enactment of Tax Reform~~ ~~— In accordance with the applicable accounting guidance, the Company recognized the provisional tax impacts~~additional information related to the ~~remeasurement of our deferred~~impairments.

Recent Legislation — On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax assets and liabilities and the one-time, mandatory transition tax on deemed repatriation during the year ended December 31, 2017. In September 2018, measurement period adjustments to the provisional tax impacts due to the filing of our 2017 income tax returns resulted in a reduction in our income tax expense of $12 million.

~~Tax Audit Settlements~~ — We are currently under audit by the IRS and various state and local taxing authorities and our audits are in various stages of completion. In June 2018, we settled various tax audits, which resulted in a reduction in our income tax expense of $33 million.provisions,

1413

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~Tax Implications~~none of ~~Impairment~~ ~~— We recognized a $52 million impairment charge in the first quarter of 2019~~ which ~~was not deductible for tax purposes. In the third quarter of 2018, we recognized a $29 million charge to impair a landfill which was deductible for tax purposes and resulted in no impact to~~directly affected our ~~effective~~ income tax ~~rate. See Note 10~~expense for ~~additional information.~~the three and six months ended June 30, 2020 or are expected to have a material impact on our income tax expense in future reporting periods. The Company is evaluating the impact of the CARES Act and expects to benefit from the deferral of certain payroll taxes through the end of calendar year 2020.

6.5. Earnings Per Share

Basic and diluted earnings per share were computed using the following common share data (shares in millions):


	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2019	2018	2019	2018	2020	2019	2020	2019
Number of common shares outstanding at end of period	424.2	427.1	424.2	427.1	422.2	423.8	422.2	423.8
Effect of using weighted average common shares outstanding	0.3	0.8	0.4	3.2	0.1	1.0	1.0	0.8
Weighted average basic common shares outstanding	424.5	427.9	424.6	430.3	422.3	424.8	423.2	424.6
Dilutive effect of equity-based compensation awards and other contingently issuable shares	2.9	2.9	2.8	2.9	1.6	2.7	1.9	2.6
Weighted average diluted common shares outstanding	427.4	430.8	427.4	433.2	423.9	427.5	425.1	427.2
Potentially issuable shares	6.8	7.6	6.8	7.6	6.5	7.2	6.5	7.2
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding	0.7	1.5	0.7	1.5	2.1	1.1	2.1	1.9

7.6. 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 ~~$2.75~~$3.5 billion revolving credit facility and other credit facilities established for that purpose. These facilities are discussed further in Note 3. Surety bonds and insurance policies are supported by (i) a diverse group of third-party surety and insurance companies; (ii) an entity in which we have a noncontrolling financial interest or (iii) a wholly-owned insurance captive, the sole business of which is to issue surety bonds and/or insurance policies on our behalf.

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.~~operations as a result of COVID-19 or other economic factors. 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 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. 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 occurrences or loss development

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

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.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, WM and WM Holdings enter into guarantee agreements associated with their subsidiaries’ operations. Additionally, WM 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. ~~See Note 15 for additional information.~~

As of ~~September~~June 30, ~~2019,~~2020, we have guaranteed the obligations and certain performance requirements of third parties in connection with both consolidated and unconsolidated entities, including ~~(i)~~ guarantees to cover certain market value losses for ~~approximately 850 homeowners’~~certain properties adjacent to or near 18 of our ~~landfills and (ii) guarantees totaling $57 million for performance obligations~~landfills. Additionally, in connection with the divestiture of our Wheelabrator business ~~divested~~ in ~~2014. In February 2019, Wheelabrator was acquired by a third party, at which time~~2014, we agreed to continue ~~to provide such guarantees.~~providing guarantees of certain of its operational and financial performance obligations. During the second quarter of 2020, we were released from the last outstanding guarantee and all outstanding guarantees have now been returned, replaced or expired by their terms. We have also agreed to indemnify certain third-party purchasers against liabilities associated with divested operations prior to such sale. Additionally, under certain of our acquisition agreements, we have provided for additional consideration to be paid to the sellers if established financial targets or other market conditions are achieved post-closing, and we have recognized liabilities for these contingent obligations based on an estimate of the fair value of these contingencies at the time of acquisition. We do not believe that these contingent obligations will have a material adverse effect on the Company’s financial condition, results of operations or cash flows, and we do not expect the financial impact of operational and financial performance guarantees to materially exceed the recorded fair value.

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, our aggregate potential liability would be approximately $145 million higher than the ~~$239~~$242 million recorded in the Condensed Consolidated Balance Sheet as of ~~September~~June 30, ~~2019.~~2020. Our ultimate responsibility may differ materially from current estimates. It is possible that technological, regulatory or enforcement developments, the results of environmental studies, the inability to identify other PRPs, the inability of other PRPs to contribute to the settlements of such liabilities, or other factors could require us to record additional liabilities. Our ongoing review of our remediation liabilities, in light of relevant internal and external facts and circumstances, could result in revisions to our accruals that could cause upward or downward adjustments to our balance sheet and income from operations. These adjustments could be material in any given period.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

As of ~~September~~June 30, ~~2019,~~2020, we have been notified by the government that we are a PRP in connection with 75 locations listed on the Environmental Protection Agency’s (“EPA’s”) Superfund National Priorities List (“NPL”). Of the 75 sites at which claims have been made against us, 15 are sites we own. Each of the NPL sites we own was initially developed by others as a landfill disposal facility. At each of these facilities, we are working in conjunction with the government to

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

evaluate or remediate identified site problems, and we have either agreed with other legally liable parties on an arrangement for sharing the costs of remediation or are working toward a cost-sharing agreement. We generally expect to receive any amounts due from other participating parties at or near the time that we make the remedial expenditures. The other 60 NPL sites, which we do not own, are at various procedural stages under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, known as CERCLA or Superfund.

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.

On October 11, 2017, the EPA issued its Record of Decision (“ROD”) with respect to the previously proposed remediation plan for the San Jacinto waste pits in Harris County, Texas. McGinnes Industrial Maintenance Corporation (“MIMC”), an indirect wholly-owned subsidiary of WM, operated some of the waste pits from 1965 to 1966 and has been named as a site PRP. In 1998, WM acquired the stock of the parent entity of MIMC. MIMC has been working with the EPA and other named PRPs as the process of addressing the site proceeds. On April 9, 2018, MIMC and International Paper Company entered into an Administrative Order on Consent agreement with the EPA to develop a remedial design for the EPA’s ~~selected~~proposed remedy for the site. Allocation of responsibility among the PRPs for the ~~selected~~proposed remedy has not been established. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the recorded liability for MIMC’s estimated potential share of the EPA’s ~~selected~~proposed remedy and related costs was $56 ~~million and $55 million, respectively.~~million. MIMC’s ultimate liability could be materially different from current estimates.

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, of less than $100,000. The following ~~matter is~~matters are disclosed in accordance with that requirement. We do not currently believe that the eventual outcome of such matter could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.requirement:

On July 10, 2013, the EPA issued a Notice of Violation ("NOV") to Waste Management of Wisconsin, Inc., an indirect wholly-owned subsidiary of WM, alleging violations of the Resource Conservation and Recovery Act concerning acceptance of certain waste that was not permitted to be disposed of at the Metro Recycling & Disposal Facility in Franklin, Wisconsin. The parties ~~are exchanging information and working~~have agreed to resolve this matter through payment of a penalty, implementation of additional monitoring activities and revisions to waste acceptance protocols at the ~~NOV.~~facility. The related Consent Decree is expected to become final in the third quarter of 2020. The outcome of this matter will not be material to the Company’s business, financial condition, results of operations or cash flows.

On November 25, 2019, the Georgia Department of Natural Resources, Environmental Protection Division, issued an NOV to Waste Management of Metro Atlanta, Inc., an indirect wholly-owned subsidiary of WM. The NOV alleges violations of Georgia environmental statutes and the related permits for Pine Bluff Landfill resulting from slope stability concerns at the landfill that are being remediated. On June 11, 2020, the parties resolved the matter through a Consent Order requiring payment of a penalty and the implementation of additional corrective actions, monitoring and reporting at the landfill. The outcome of this matter is not material to the Company’s business, financial condition, results of operations or cash flows.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

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 — As a large company with operations across the U.S. and Canada, 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, 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.

WM’s charter and bylaws provide that WM 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 WM’s Board of Directors and each of WM’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 20% of our workforce is covered by collective bargaining agreements with various local unions across the U.S. and Canada. As a result of some of these agreements, certain of our subsidiaries are participating employers in a number of trustee-managed multiemployer defined benefit pension plans (“Multiemployer Pension Plans”) for the covered employees. In connection with our ongoing renegotiation of various collective bargaining agreements, we may discuss and negotiate for the complete or partial withdrawal from one or more of these Multiemployer Pension Plans. A complete or partial withdrawal from a Multiemployer Pension Plan may also occur if employees covered by a collective bargaining agreement vote to decertify a union from continuing to represent them. Any other circumstance resulting in a decline in Company contributions to a Multiemployer Pension Plan through a reduction in the labor force, whether through attrition over time or through a business event (such as the discontinuation or nonrenewal of a customer contract, the decertification of a union, or relocation, reduction or discontinuance of certain operations) may also trigger a complete or partial withdrawal from one or more of these pension plans. During the first quarter of 2020, we recognized a $3 million charge to operating expenses for the withdrawal from an underfunded Multiemployer Pension Plan.

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

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 participate in the IRS’s Compliance Assurance Process, which means we work with the IRS throughout the year towards resolving any material issues prior to the filing of our annual tax return. Any unresolved issues as of the tax return filing date are subject to routine examination procedures. We are currently in the examination phase of IRS audits for the 2017 through ~~2019~~2020 tax years and expect these audits to be completed within the next 1821 months. We are

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

also currently undergoing audits by various state and local jurisdictions for tax years that date back to ~~2013.~~2014. 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.

8.7. Segment and Related Information

We evaluate, oversee and manage the financial performance of our Solid Waste business subsidiaries through our 17 Areas. The 17 Areas constitute ~~our~~ operating segments and we have evaluated the aggregation criteria and concluded that, based on the similarities between our Areas, including the fact that our Solid Waste business is homogenous across geographies with the same services offered across the Areas, aggregation of our Areas is appropriate for purposes of presenting our reportable segments. Accordingly, we have aggregated our 17 Areas into 3 tiers that we believe have similar economic characteristics and future prospects based in large part on a review of the Areas’ income from operations margins. The economic variations experienced by our Areas are attributable to a variety of factors, including regulatory environment of the Area; economic environment of the Area, including level of commercial and industrial activity; population density; service offering mix and disposal logistics, with no one factor being singularly determinative of an Area’s current or future economic performance.

In the fourth quarter of 2019, as part of our annual review process, we analyzed the Areas’ income from operations margins for purposes of segment reporting and realigned our Solid Waste tiers to reflect recent changes in their relative economic characteristics and prospects. These changes are the results of various factors including acquisitions, divestitures, business mix and the economic climate of various geographies. As a result, we reclassified Western Canada from Tier 1 to Tier 2 and Northern California from Tier 3 to Tier 2. Reclassifications have been made to our prior period condensed consolidated financial information to conform to the current year presentation.

Tier 1 is comprised of our operations across the Southern U.S., with the exception of the Southern California Area and the Florida ~~peninsula,~~Area, and also includes the New England ~~states,~~Area and the tri-state ~~area~~Area of Michigan, Indiana and ~~Ohio, and Western Canada.~~Ohio. Tier 2 includes ~~Southern~~ California, ~~Eastern~~ Canada, and the Wisconsin and ~~Minnesota.~~Minnesota Area. Tier 3 encompasses all the remaining operations including the Pacific Northwest, ~~Northern California,~~ the Mid-Atlantic region of the U.S., the Florida ~~peninsula,~~Area, and the Illinois and ~~Missouri.~~Missouri Valley Area.

The operating segments not evaluated and overseen through the 17 Areas are presented herein as “Other” as these operating segments do not meet the criteria to be aggregated with other operating segments and do not meet the quantitative criteria to be separately reported.

1918

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summarized financial information concerning our reportable segments is shown in the following table (in millions):


	Gross		Intercompany		Net		Income		Gross		Intercompany		Net		Income
	Operating		Operating		Operating		from		Operating		Operating		Operating		from
	Revenues		Revenues		Revenues		Operations		Revenues		Revenues(c)		Revenues		Operations(d)
Three Months Ended September 30:
Three Months Ended June 30:
2020
Solid Waste:
Tier 1									$	1,418	$	(271)	$	1,147	$	316
Tier 2										897		(190)		707		182
Tier 3										1,453		(275)		1,178		222
Solid Waste										3,768		(736)		3,032		720
Other (a)										554		(25)		529		(10)
										4,322		(761)		3,561		710
Corporate and Other(b)										—		—		—		(183)
Total									$	4,322	$	(761)	$	3,561	$	527

2019
Solid Waste:
Tier 1	$	1,610	$	(300)	$	1,310	$	432	$	1,573	$	(293)	$	1,280	$	434
Tier 2		714		(135)		579		153		995		(199)		796		230
Tier 3		1,891		(369)		1,522		351		1,631		(311)		1,320		282
Solid Waste		4,215		(804)		3,411		936		4,199		(803)		3,396		946
Other (a)		589		(33)		556		(36)		580		(30)		550		(49)
		4,804		(837)		3,967		900		4,779		(833)		3,946		897
Corporate and Other(b)		—		—		—		(166)		—		—		—		(201)
Total	$	4,804	$	(837)	$	3,967	$	734	$	4,779	$	(833)	$	3,946	$	696

2018
Solid Waste:
Tier 1	$	1,506	$	(277)	$	1,229	$	416
Tier 2		671		(127)		544		142
Tier 3		1,818		(353)		1,465		291
Solid Waste		3,995		(757)		3,238		849
Other (a)		629		(45)		584		(15)
		4,624		(802)		3,822		834
Corporate and Other(b)		—		—		—		(135)
Total	$	4,624	$	(802)	$	3,822	$	699

2019

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Gross		Intercompany		Net		Income		Gross		Intercompany		Net		Income
	Operating		Operating		Operating		from		Operating		Operating		Operating		from
	Revenues		Revenues		Revenues		Operations		Revenues		Revenues(c)		Revenues		Operations(d)
Nine Months Ended September 30:
Six Months Ended June 30:
2020
Solid Waste:
Tier 1									$	2,921	$	(551)	$	2,370	$	709
Tier 2										1,829		(388)		1,441		370
Tier 3										2,994		(569)		2,425		486
Solid Waste										7,744		(1,508)		6,236		1,565
Other (a)										1,108		(54)		1,054		(35)
										8,852		(1,562)		7,290		1,530
Corporate and Other(b)										—		—		—		(430)
Total									$	8,852	$	(1,562)	$	7,290	$	1,100

2019
Solid Waste:
Tier 1	$	4,704	$	(869)	$	3,835	$	1,258	$	3,026	$	(558)	$	2,468	$	832
Tier 2		2,060		(390)		1,670		437		1,899		(381)		1,518		430
Tier 3		5,515		(1,074)		4,441		1,005		3,139		(590)		2,549		552
Solid Waste		12,279		(2,333)		9,946		2,700		8,064		(1,529)		6,535		1,814
Other (a)		1,757		(94)		1,663		(124)		1,168		(61)		1,107		(67)
		14,036		(2,427)		11,609		2,576		9,232		(1,590)		7,642		1,747
Corporate and Other(b)		—		—		—		(525)		—		—		—		(430)
Total	$	14,036	$	(2,427)	$	11,609	$	2,051	$	9,232	$	(1,590)	$	7,642	$	1,317

2018
Solid Waste:
Tier 1	$	4,364	$	(787)	$	3,577	$	1,176
Tier 2		1,947		(361)		1,586		405
Tier 3		5,227		(1,012)		4,215		877
Solid Waste		11,538		(2,160)		9,378		2,458
Other (a)		1,849		(155)		1,694		(25)
		13,387		(2,315)		11,072		2,433
Corporate and Other(b)		—		—		—		(411)
Total	$	13,387	$	(2,315)	$	11,072	$	2,022

(a)

“Other” includes (i) our Strategic Business Solutions (“WMSBS”) organization; (ii) those elements of our landfill gas-to-energy operations and third-party subcontract and administration revenues managed by our Energy and Environmental Services (“EES”) and WM Renewable Energy organizations that are not included in the operations of our reportable segments; (iii) our recycling brokerage services and (iv) certain other expanded service offerings and solutions. In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

(b)

Corporate operating results reflect certain costs incurred for various support services that are not allocated to our reportable segments. These support services include, among other things, treasury, legal, information technology, tax, insurance, centralized service center processes, other administrative functions and the maintenance of our closed landfills. Income from operations for “Corporate and Other” also includes costs associated with our long-term incentive program and any administrative expenses or revisions to our estimated obligations associated with divested operations.

(c)	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.

(d)

Income from operations provided by our Solid Waste business is generally indicative of the margins provided by our collection, landfill, transfer and recycling lines of business. 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. In 2020, we revised allocations between our segments including (i) the discontinuation of certain allocations from Corporate and Other to Solid Waste and (ii) allocating certain insurance costs from Other to Solid Waste. Reclassifications have been made to our prior period information for comparability purposes.

2120

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the second quarter of 2020, we recognized $61 million of non-cash impairment charges, including $41 million related to our energy services assets in our Tier 1 segment. Refer to Note 9 for additional information. Our 2020 operating results were also negatively impacted by revenue declines in our landfill, industrial and commercial collection businesses beginning in March 2020 as a result of the COVID-19 pandemic.

The mix of operating revenues from our major lines of business are as follows (in millions):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Commercial	$	1,069	$	1,007	$	3,147	$	2,948	$	928	$	1,052	$	1,991	$	2,078
Residential		661		639		1,956		1,885		657		655		1,307		1,295
Industrial		766		723		2,190		2,068		625		744		1,318		1,424
Other		130		117		361		333
Other collection										115		122		227		231
Total collection		2,626		2,486		7,654		7,234		2,325		2,573		4,843		5,028
Landfill		993		926		2,880		2,646		874		1,023		1,761		1,887
Transfer		471		445		1,357		1,257		439		474		880		886
Recycling		245		337		800		954		275		264		529		555
Other (a)		469		430		1,345		1,296		409		445		839		876
Intercompany (b)		(837)		(802)		(2,427)		(2,315)		(761)		(833)		(1,562)		(1,590)
Total	$	3,967	$	3,822	$	11,609	$	11,072	$	3,561	$	3,946	$	7,290	$	7,642

(a)

The “Other” line of business includes (i) our WMSBS organization; (ii) our landfill gas-to-energy operations; (iii) certain services within our EES organization, including our construction and remediation services and our services associated with the disposal of fly ash and (iv) certain other expanded service offerings and solutions. In addition, our “Other” line of business reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity. Activity related to collection, landfill, transfer and recycling within “Other” has been reclassified to the appropriate line of business for purposes of the presentation in this table.

(b)	Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included within this report.

Fluctuations in our operating results may be caused by many factors, including period-to-period changes in the relative contribution of revenue by each line of business, changes in commodity prices and general economic conditions. ~~In addition,~~Typically, our revenues and income from operations ~~typically~~ reflect seasonal patterns. Our operating revenues tend to be somewhat higher in summer months, primarily due to the higher construction and demolition waste volumes. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months.

Our 2020 operating results were negatively impacted by COVID-19, as volumes declined beginning in March 2020 and continued through the second quarter in our landfill, industrial and ~~third quarter revenues~~commercial collection businesses, due to steps taken by national and ~~results~~local governments to slow the spread of ~~operations typically reflect~~the virus, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. For customers negatively impacted by the COVID-19 pandemic, we have proactively waived and suspended certain ancillary service charges, deferred certain annual price increases, extended payment terms and adjusted customer service levels. Additionally, for qualifying small and medium businesses, we have provided customers with one-month of free service upon re-opening. While the customer-centric steps have also contributed to this revenue decline, these ~~seasonal trends.~~impacts have been relatively immaterial.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

our operations in the Southern and Eastern U.S. during the second half of the year, can increase our revenues in the Areas ~~affected.~~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, ~~such revenue can generate earnings at comparatively lower margins~~ as a result of significant start-up costs and other ~~factors.~~factors, such revenue can generate earnings at comparatively lower margins.

9.8. Acquisitions

Pending Acquisition

Advanced Disposal—On April 14, 2019, we entered into ~~the~~an Agreement and Plan of Merger ~~Agreement~~ to acquire all outstanding shares of Advanced Disposal for $33.15 per share in cash, representing a total enterprise value at the time of $4.9 billion when including approximately $1.9 billion of Advanced Disposal’s net debt. On June 24, 2020, we entered into an amendment to the Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which a subsidiary of WM will acquire all outstanding shares of Advanced Disposal for $30.30 per share in cash, representing a total enterprise value of $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt. Advanced Disposal’s solid waste network includes 95 collection operations, 73 transfer stations, 41 owned or operated landfills and 22 owned or operated recycling facilities. ~~The transaction is expected~~We currently expect the acquisition to close ~~during~~by the ~~first~~end of the third quarter of ~~2020, subject to~~2020. The Merger Agreement provides that the ~~satisfaction of customary closing conditions, including regulatory approvals. On June 28, 2019,~~Company and Advanced Disposal ~~announced that 85.9% of the outstanding shares of its common stock entitled~~will have a mutual right to ~~vote were voted in favor of the proposal to adopt~~terminate the Merger Agreement ~~at a special meeting of stockholders held~~after September 30, 2020 if the closing has not occurred, and that ~~day.~~

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~date will automatically extend to November 30, 2020 under certain circumstances.

On June 24, 2020, we also announced that we and Advanced Disposal have entered into an agreement, whereby GFL Environmental will acquire a combination of assets from us and Advanced Disposal for $835 million to address substantially all of the divestitures expected to be required by the U.S. Department of Justice in connection with the Advanced Disposal acquisition. As with the Advanced Disposal acquisition, the sale of assets to GFL Environmental remains subject to clearance from the U.S. Department of Justice and is also conditioned on the closing of our acquisition of Advanced Disposal.

2019 Acquisition

Petro Waste Environmental LP (“Petro Waste”) — On March 8, 2019, Waste Management Energy Services Holdings, LLC, an indirect wholly-owned subsidiary of WM, acquired Petro Waste. The acquired business provides comprehensive oilfield environmental services and solid waste disposal facilities in the Permian Basin and the Eagle Ford Shale. The acquisition ~~is intended to expand~~has expanded our offerings and ~~enhance~~enhanced the quality of solid waste disposal services for oil and gas exploration and production operations in Texas. Our purchase price ~~is expected to be~~was primarily allocated to 7 landfills, which are included in our property and equipment. ~~The allocation of purchase price for Petro Waste is preliminary and is subject to standard post-closing adjustments.~~

The acquisition was funded with borrowings under our commercial paper ~~program. For~~program and the ~~three and nine months ended September 30, 2019, the impact~~acquisition accounting for this transaction was finalized in 2019. The operating results of the ~~acquisition was~~acquired business did not have a material impact to our consolidated financial ~~statements.~~statements for the periods presented herein. Given the significant change in energy market dynamics from the time of the acquisition, we have seen a decline in the fair value of certain of these assets from the time of acquisition. The impairment recognized during the three months ended June 30, 2020 is discussed further in Note 9.

~~10.~~22

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Asset Impairments and Unusual Items

(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net

During the ~~nine months ended September 30, 2018,~~second quarter of 2020, we recognized ~~a net gain~~non-cash impairment charges of ~~$14~~$61 million primarily related to ~~net gains from divestitures~~the following:

Energy Services Asset Impairments— During the second quarter of ~~$43 million from~~2020, the ~~sale~~Company tested the recoverability of certain ~~ancillary operations,~~energy services assets in our Tier 1 segment. Indicators of impairment included (i) the sharp downturn in oil demand that has led to a significant decline in oil prices and production activities, which ~~were partially offset by~~we project will have long-term impacts on the utilization of our assets and (ii) significant shifts in our business, including increases in competition and customers choosing to bury waste on site versus in a ~~$29~~landfill, reducing our revenue outlook. The Company determined that the carrying amount of the asset group was not fully recoverable. As a result, we recognized $41 million ~~charge, during~~of non-cash impairment charges primarily related to two landfills and an oil field waste injection facility in our Tier 1 segment. We wrote down the ~~third quarter~~net book value of ~~2018,~~these assets to ~~impair~~their estimated fair value using an income approach based on estimated future cash flow projections (Level 3). The aggregate fair value of the impaired asset group was $8 million as of June 30, 2020. The Company tested the recoverability of an additional $239 million in energy services assets and determined that the carrying amount was recoverable as of June 30, 2020.

Other Impairments — In addition to the energy services impairments noted above, we recognized a ~~landfill~~$20 million non-cash impairment charge in our Tier 3 segment due to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace, which was considered an impairment indicator. As the carrying value was not recoverable, we wrote off the entire net book value of the asset using an income approach based on ~~an internally developed discounted projected~~estimated future cash flow ~~analysis, taking into account continued volume decreases~~projections (Level 3). The impairment charge was comprised of $12 million related to the carrying value of the asset and ~~revised~~$8 million related to the acceleration of the expected timing of capping, ~~cost estimates.~~closure and post-closure activities, which is discussed further in Note 2.

Equity in Net Losses of Unconsolidated Entities

During the first quarter of 2020, we recorded a non-cash impairment charge of $7 million related to our investment in a refined coal facility which is discussed further in Notes 4 and 13. The fair value of our investment was not readily determinable; thus, we determined the fair value using management assumptions pertaining to investment value (Level 3).

Other, Net

During the first quarter of 2019, we recognized a $52 million non-cash impairment charge related to our minority-owned investment in a waste conversion technology business. We wrote down our investment to its estimated fair value as the result of ~~recent~~a third-party investor’s transactions in these securities. The fair value of our investment was not readily determinable; thus, we determined the fair value utilizing a combination of quoted price inputs for the equity in our investment (Level 2) and certain management assumptions pertaining to investment value (Level 3).

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~11.~~10. Accumulated Other Comprehensive Income (Loss)

The changes in the balances of each component of accumulated other comprehensive income (loss), 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, 2018

$
(32)

$
23

$
(76)

$
(2)

$
(87)
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $0, $4, $0 and $0, respectively

—

13

36

—

49
Amounts reclassified from accumulated other comprehensive (income) loss, net of tax (expense) benefit of $2, $0, $0 and $0, respectively

6

—

—

(1)

5
Net current period other comprehensive income (loss)

6

13

36

(1)

54
Balance, September 30, 2019

$
(26)

$
36

$
(40)

$
(3)

$
(33)


					Foreign		Post-
			Available-		Currency		Retirement
	Derivative		for-Sale		Translation		Benefit
	Instruments		Securities		Adjustments(a)		Obligations		Total
December 31, 2019	$	(24)	$	38	$	(21)	$	(1)	$	(8)
Other comprehensive income (loss) before reclassifications, net of tax expense (benefit) of $0, $2, $0 and $0, respectively		1		5		(42)		—		(36)
Amounts reclassified from accumulated other comprehensive (income) loss, net of tax (expense) benefit of $1, $0, $0 and $0, respectively		4		—		—		(1)		3
Net current period other comprehensive income (loss)		5		5		(42)		(1)		(33)
June 30, 2020	$	(19)	$	43	$	(63)	$	(2)	$	(41)

(a)	Foreign currency translation adjustments were impacted by a decrease in the Canadian/U.S. dollar exchange rate from 0.7698 at December 31, 2019 to 0.7366 at June 30, 2020.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

We had interest rate derivatives outstanding during the first half of 2020, which were classified as a cash flow hedges and are discussed further in Note 3. In June 2020, we terminated these treasury rate locks and received $1 million in cash. We are now evaluating a potential debt issuance to occur during the second half of the year, subject to market conditions and other considerations. As we currently believe that a debt issuance in 2020 is still probable to occur, the gain associated with these treasury rate locks has been deferred as a component of “Accumulated other comprehensive income” and will be amortized to interest expense over the debt term once the issuance occurs. We had 0 active derivatives outstanding during ~~the reported periods.~~2019. Amounts reclassified out of accumulated other comprehensive income (loss) associated with our previously terminated cash flow hedges were not material for the periods presented.

~~12.~~11. 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 ~~January 2019,~~February 2020, we ~~paid $4~~entered into an accelerated share repurchase (“ASR”) agreement to repurchase $313 million of our common stock. At the beginning of the repurchase period, we delivered $313 million cash and received 2.0 million shares based on a stock price of $125.75. The ASR agreement completed in ~~cash for share repurchases executed in December 2018. In addition, during~~March 2020, at which time we received 0.8 million additional shares based on a final weighted average price of $111.78.

During the first quarter of ~~2019,~~2020, we ~~repurchased 0.7 million~~also began repurchasing shares of our common stock in open market transactions in compliance with Rule 10b5-1 and Rule 10b-18 of the Exchange Act. This repurchase program ended on March 27, 2020 and we repurchased 0.9 million shares. Cash paid for these share repurchases was ~~$64~~$89 million, inclusive of per-share commissions, which represents a weighted average price per share of ~~$94.35. These repurchases were made under our prior $1.25 billion Board of Directors authorization announced in December 2017.~~

We announced in December 2018 that the Board of Directors authorized up to $1.5 billion in future share repurchases, which superseded and replaced remaining authority under any prior Board of Directors authorization for share repurchases after the completion of our open market repurchases noted above. As a result of the pending acquisition of Advanced Disposal discussed in Note 9, we decided to limit 2019 share repurchases to an amount sufficient to offset dilution impacts from our stock-based compensation plans. In May 2019, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $180 million of our common stock. At the beginning of the repurchase period, we delivered $180 million cash and received 1.3 million shares based on a stock price of $109.59. The ASR agreement completed in September 2019, at which time we received 0.3 million additional shares based on a final weighted average per share price of $114.76.$99.96.

As of ~~September~~June 30, ~~2019,~~2020, the Company has authorization for ~~$1.3 billion~~$918 million of future share repurchases. To enhance our liquidity position in response to COVID-19, we elected to temporarily suspend additional share repurchases for the foreseeable future. Any future share repurchases pursuant to this authorization of our Board of Directors will be made at the discretion of management and will depend on factors similar to those considered by the Board of Directors in making dividend declarations, including our net earnings, financial condition and cash required for future business plans, growth and ~~acquisitions and other factors the Board of Directors may deem relevant. As a result of the pending acquisition discussed in Note 9, we do not expect additional share repurchases in 2019.~~acquisitions.

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~13.~~12. 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):


	September 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
Fair Value Measurements Using:
Quoted prices in active markets (Level 1):
Money market funds (a)	$	2,918	$	70
		2,918		70

Cash equivalents and money market funds					$	2,616	$	3,527
Significant other observable inputs (Level 2):
Available-for-sale securities (b)		352		288
		352		288

Available-for-sale securities (a)						397		350
Significant unobservable inputs (Level 3):
Redeemable preferred stock (c)		49		66
		49		66

Redeemable preferred stock (b)						49		49
Total Assets	$	3,319	$	424	$	3,062	$	3,926

(a)	Our money market funds are invested in high-yield secure and stable funds. The increase in 2019 is primarily due to proceeds from our May 2019 issuance of senior notes and our September 2019 issuance of Canadian senior notes. See Note 3 for additional information.

~~(b)~~

Our available-for-sale securities generally mature over the next ~~ten~~nine years.

~~(c)~~(b)

When available, Level 3 investments have been measured based on third-party investors’ recent or pending transactions in these securities, which are considered the best evidence of fair value. When this evidence is not available, we use other valuation techniques as appropriate and available. These valuation methodologies may include transactions in similar instruments, discounted cash flow techniques, third-party appraisals or industry multiples and public company comparable transactions. In the first quarter of 2019, we redeemed our preferred stock received in conjunction with the 2014 sale of our Puerto Rico operations for $17 million. At the time of redemption, the value of redeemable preferred stock was $20 million, resulting in a $3 million loss on investment.

See Note 9 for information related to our nonrecurring fair value measurements and the impact of impairments.

Fair Value of Debt

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying value of our debt was ~~$13.4~~$12.8 billion and ~~$10.0~~$13.5 billion, respectively. The estimated fair value of our debt was approximately ~~$14.6~~$13.9 billion and ~~$10.1~~$14.5 billion as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The increase in the fair value of our debt in 2019 is primarily due to $3.1 billion of net borrowings (inclusive of net commercial paper repayments), which are discussed further in Note 3, and decreases in current market rates for similar types of instruments.

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. Furthermore, the fair value of debt instruments measured as of June 30, 2020 is particularly susceptible to variability from future measurements of fair value given elevated volatility in key market factors due to the impact the COVID-19 pandemic is having on financial markets. 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 ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. These amounts have not been revalued since those dates, and current estimates of fair value could differ significantly from the amounts presented.

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~14.~~13. Variable Interest Entities

Following is a description of our financial interests in unconsolidated and consolidated variable interest entities that we consider significant:

WASTE MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Low-Income Housing Properties and Refined Coal Facility Investments

We do not consolidate our investments in entities established to manage low-income housing properties and a refined coal facility 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 ~~$321~~$260 million and ~~$189~~$309 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The debt balance related to our investments in low-income housing properties was ~~$278~~$240 million and ~~$151~~$269 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. During the first quarter of 2020, the entity which holds the investment in the refined coal facility sold the majority of its assets, which resulted in a $7 million non-cash impairment of our investment. Additional information related to these investments is discussed in Note 5.4.

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 ~~either~~ do not have the ~~(i)~~ 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 ~~$97~~$99 million and ~~$92~~$101 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

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 trust and escrow accounts 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 ~~our~~ accumulated other comprehensive income (loss). These trusts had a fair value of ~~$108~~$110 million and ~~$103~~$109 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~WASTE MANAGEMENT, INC.~~14. Subsequent Events

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~On July 20, 2020, we fulfilled our redemption obligations with respect to the SMR Notes using available cash on hand and, to a lesser extent, commercial paper borrowings. The cash paid includes the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest. As of June 30, 2020, we had approximately $22 million of unamortized discounts and deferred issuance costs related to the SMR Notes. The $30 million of premiums paid and $22 million of unamortized discounts and deferred issuance costs will be included in the calculation of our expected loss on early extinguishment of debt in our Consolidated Statement of Operations in the third quarter of 2020.

~~15. Condensed Consolidating Financial Statements~~

On July 28, 2020, we entered into a supplemental 364-day, $3.0 billion U.S. revolving credit facility maturing July 27, 2021, which will be used for general corporate purposes, including funding a portion of the Advanced Disposal acquisition and refinancing of indebtedness, and to provide working capital. The facility provides the Company the option to convert outstanding balances into a term loan maturing no later than the first anniversary of the maturity date, subject to the payment of a fee and notifying the administrative agent at least 15 days prior to the original maturity date. WM Holdings, ~~has fully and unconditionally guaranteed all of WM’s senior indebtedness. WM has fully and unconditionally guaranteed all~~a wholly-owned subsidiary of WM, ~~Holdings’ senior indebtedness. None of WM’s other subsidiaries have guaranteed any of WM’s or WM Holdings’ debt. As~~guarantees all the obligations under the $3.0 billion revolving credit facility. The rates we pay for outstanding loans are generally based on LIBOR, plus a ~~result of these guarantee arrangements,~~spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR ranges from 1.0% to 1.3%. Based on our current ratings, the rate which we ~~are required~~expect to ~~present the following condensed consolidating financial information (in millions):~~

~~CONDENSED CONSOLIDATING BALANCE SHEETS~~

~~September 30, 2019~~

~~(Unaudited)~~

WM

Non-Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
ASSETS

Current assets:










Cash and cash equivalents

$
2,863

$
—

$
52

$
—

$
2,915
Other current assets

48

4

2,639

(46)

2,645

2,911

4

2,691

(46)

5,560
Property and equipment, net

—

—

12,805

—

12,805
Investments in affiliates

25,940

26,367

—

(52,307)

—
Advances to affiliates

—

—

17,930

(17,930)

—
Other assets

5

10

8,729

—

8,744
Total assets

$
28,856

$
26,381

$
42,155

$
(70,283)

$
27,109

LIABILITIES AND EQUITY

Current liabilities:










Current portion of long-term debt

$
14

$
—

$
197

$
—

$
211
Accounts payable and other current liabilities

113

7

2,704

(46)

2,778

127

7

2,901

(46)

2,989
Long-term debt, less current portion

10,611

248

2,288

—

13,147
Due to affiliates

18,039

188

6,709

(24,936)

—
Other liabilities

3

—

4,183

—

4,186
Total liabilities

28,780

443

16,081

(24,982)

20,322
Equity:










Stockholders’ equity

6,785

25,938

26,369

(52,307)

6,785
Advances to affiliates

(6,709)

—

(297)

7,006

—
Noncontrolling interests

—

—

2

—

2

76

25,938

26,074

(45,301)

6,787
Total liabilities and equity

$
28,856

$
26,381

$
42,155

$
(70,283)

$
27,109

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)~~

~~December 31, 2018~~

WM

Non-Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
ASSETS

Current assets:










Cash and cash equivalents

$
—

$
—

$
61

$
—

$
61
Other current assets

2

5

2,577

—

2,584

2

5

2,638

—

2,645
Property and equipment, net

—

—

11,942

—

11,942
Investments in affiliates

24,676

25,097

—

(49,773)

—
Advances to affiliates

—

—

17,258

(17,258)

—
Other assets

8

31

8,024

—

8,063
Total assets

$
24,686

$
25,133

$
39,862

$
(67,031)

$
22,650

LIABILITIES AND EQUITY

Current liabilities:










Current portion of long-term debt

$
258

$
—

$
174

$
—

$
432
Accounts payable and other current liabilities

82

9

2,585

—

2,676

340

9

2,759

—

3,108
Long-term debt, less current portion

7,377

304

1,913

—

9,594
Due to affiliates

17,398

146

6,709

(24,253)

—
Other liabilities

5

—

3,667

—

3,672
Total liabilities

25,120

459

15,048

(24,253)

16,374
Equity:










Stockholders’ equity

6,275

24,674

25,099

(49,773)

6,275
Advances to affiliates

(6,709)

—

(286)

6,995

—
Noncontrolling interests

—

—

1

—

1

(434)

24,674

24,814

(42,778)

6,276
Total liabilities and equity

$
24,686

$
25,133

$
39,862

$
(67,031)

$
22,650

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

~~Three Months Ended September 30, 2019~~

~~(Unaudited)~~

WM

Non-Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
Operating revenues

$
—

$
—

$
4,012

$
(45)

$
3,967
Costs and expenses

45

—

3,233

(45)

3,233
Income from operations

(45)

—

779

—

734
Other income (expense):










Interest expense, net

(92)

(5)

(8)

—

(105)
Loss on early extinguishment of debt

—

—

(1)

—

(1)
Equity in earnings of subsidiaries, net of tax

595

602

—

(1,197)

—
Other, net

—

72

(13)

(72)

(13)

503

669

(22)

(1,269)

(119)
Income before income taxes

458

669

757

(1,269)

615
Income tax expense (benefit)

(37)

2

155

—

120
Consolidated net income

495

667

602

(1,269)

495
Less: Net income (loss) attributable to noncontrolling interests

—

—

—

—

—
Net income attributable to Waste Management, Inc.

$
495

$
667

$
602

$
(1,269)

$
495

~~Three Months Ended September 30, 2018~~

~~(Unaudited)~~

WM

Non-Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
Operating revenues

$
—

$
—

$
3,866

$
(44)

$
3,822
Costs and expenses

44

—

3,123

(44)

3,123
Income from operations

(44)

—

743

—

699
Other income (expense):










Interest expense, net

(78)

(6)

(9)

—

(93)
Equity in earnings of subsidiaries, net of tax

589

592

—

(1,181)

—
Other, net

—

—

(9)

—

(9)

511

586

(18)

(1,181)

(102)
Income before income taxes

467

586

725

(1,181)

597
Income tax expense (benefit)

(32)

(2)

133

—

99
Consolidated net income

499

588

592

(1,181)

498
Less: Net income (loss) attributable to noncontrolling interests

—

—

(1)

—

(1)
Net income attributable to Waste Management, Inc.

$
499

$
588

$
593

$
(1,181)

$
499

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Continued)~~

~~Nine Months Ended September 30, 2019~~

~~(Unaudited)~~

WM

Non‑Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
Operating revenues

$
—

$
—

$
11,746

$
(137)

$
11,609
Costs and expenses

137

—

9,558

(137)

9,558
Income from operations

(137)

—

2,188

—

2,051
Other income (expense):










Interest expense, net

(258)

(15)

(28)

—

(301)
Loss on early extinguishment of debt

(70)

(14)

(1)

—

(85)
Equity in earnings of subsidiaries, net of tax

1,565

1,594

—

(3,159)

—
Other, net

—

68

(87)

(72)

(91)

1,237

1,633

(116)

(3,231)

(477)
Income before income taxes

1,100

1,633

2,072

(3,231)

1,574
Income tax expense (benefit)

(123)

(4)

477

—

350
Consolidated net income

1,223

1,637

1,595

(3,231)

1,224
Less: Net income (loss) attributable to noncontrolling interests

—

—

1

—

1
Net income attributable to Waste Management, Inc.

$
1,223

$
1,637

$
1,594

$
(3,231)

$
1,223

~~Nine Months Ended September 30, 2018~~

~~(Unaudited)~~

WM

Non‑Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
Operating revenues

$
—

$
—

$
11,204

$
(132)

$
11,072
Costs and expenses

132

—

9,050

(132)

9,050
Income from operations

(132)

—

2,154

—

2,022
Other income (expense):










Interest expense, net

(232)

(15)

(30)

—

(277)
Equity in earnings of subsidiaries, net of tax

1,662

1,672

—

(3,334)

—
Other, net

—

—

(28)

—

(28)

1,430

1,657

(58)

(3,334)

(305)
Income before income taxes

1,298

1,657

2,096

(3,334)

1,717
Income tax expense (benefit)

(96)

(4)

425

—

325
Consolidated net income

1,394

1,661

1,671

(3,334)

1,392
Less: Net income (loss) attributable to noncontrolling interests

—

—

(2)

—

(2)
Net income attributable to Waste Management, Inc.

$
1,394

$
1,661

$
1,673

$
(3,334)

$
1,394

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~

WM

Non-Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
Three Months Ended September 30:










2019










Comprehensive income

$
497

$
667

$
589

$
(1,269)

$
484
Less: Comprehensive income (loss) attributable to noncontrolling interests

—

—

—

—

—
Comprehensive income attributable to Waste Management, Inc.

$
497

$
667

$
589

$
(1,269)

$
484

2018










Comprehensive income

$
501

$
588

$
623

$
(1,181)

$
531
Less: Comprehensive income (loss) attributable to noncontrolling interests

—

—

(1)

—

(1)
Comprehensive income attributable to Waste Management, Inc.

$
501

$
588

$
624

$
(1,181)

$
532

WM

Non-Guarantor


WM

Holdings

Subsidiaries

Eliminations

Consolidated
Nine Months Ended September 30:










2019










Comprehensive income

$
1,229

$
1,637

$
1,643

$
(3,231)

$
1,278
Less: Comprehensive income (loss) attributable to noncontrolling interests

—

—

1

—

1
Comprehensive income attributable to Waste Management, Inc.

$
1,229

$
1,637

$
1,642

$
(3,231)

$
1,277

2018










Comprehensive income

$
1,400

$
1,661

$
1,646

$
(3,334)

$
1,373
Less: Comprehensive income (loss) attributable to noncontrolling interests

—

—

(2)

—

(2)
Comprehensive income attributable to Waste Management, Inc.

$
1,400

$
1,661

$
1,648

$
(3,334)

$
1,375

~~WASTE MANAGEMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS~~

~~Nine Months Ended September 30, 2019~~

~~(Unaudited)~~

WM

Non-Guarantor


WM(a)

Holdings(a)

Subsidiaries(a)

Eliminations

Consolidated
Cash flows provided by (used in):










Operating activities

$
—

$
—

$
2,852

$
—

$
2,852
Investing activities

—

—

(2,096)

—

(2,096)
Financing activities

—

—

2,080

—

2,080
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents

—

—

1

—

1
Intercompany activity

2,863

—

(2,863)

—

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

2,863

—

(26)

—

2,837
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

—

—

183

—

183
Cash, cash equivalents and restricted cash and cash equivalents at end of period

$
2,863

$
—

$
157

$
—

$
3,020

~~Nine Months Ended September 30, 2018~~

~~(Unaudited)~~

WM

Non-Guarantor


WM(a)

Holdings(a)

Subsidiaries(a)

Eliminations

Consolidated
Cash flows provided by (used in):










Operating activities

$
—

$
—

$
2,658

$
—

$
2,658
Investing activities

—

—

(1,506)

—

(1,506)
Financing activities

—

—

(1,015)

—

(1,015)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents

—

—

—

—

—
Intercompany activity

—

—

—

—

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

—

—

137

—

137
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

—

—

293

—

293
Cash, cash equivalents and restricted cash and cash equivalents at end of period

$
—

$
—

$
430

$
—

$
430

~~(a)~~

Cash receipts and payments of WM and WM Holdings are transacted by Non-Guarantor Subsidiaries. Cash, cash equivalents and restricted cash and cash equivalents of WM as of September 30, 2019 include remaining proceeds from our senior note issuances which are discussed further in Notes 3 and 13.

pay will be LIBOR plus 1.225%.

3226

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, ~~2018.~~2019.

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, increased competition; pricing actions; failure to implement our optimization, growth, and cost savings initiatives and overall business strategy; failure to identify acquisition targets and negotiate attractive terms; failure to consummate or integrate the acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”) or other acquisitions; failure to obtain the results anticipated from the acquisition of Advanced Disposal ~~Services, Inc.~~ or other acquisitions; environmental and other ~~regulations;~~regulations, including developments related to emerging contaminants and renewable fuel; commodity price fluctuations; international trade restrictions; weakness in general economic conditions and capital markets; public health risk and other impacts of COVID-19 or similar pandemic conditions, including increased costs, social and commercial disruption, service reductions and other adverse effects on our business, financial condition, results of operations and cash flows; failure to obtain and maintain necessary permits; disposal alternatives and waste diversion; declining waste volumes; failure to develop and protect new technology; failure of technology to perform as ~~expected; preventing, detecting~~expected, including implementation of a new enterprise resource planning system; failure to prevent, detect and ~~addressing~~address cybersecurity ~~incidents;~~incidents or comply with privacy regulations; significant environmental or other incidents resulting in liabilities and brand damage; ~~weakness in economic conditions; failure to obtain~~significant storms and ~~maintain necessary permits;~~destructive events influenced by climate change; labor disruptions; impairment charges; negative outcomes of litigation or governmental ~~proceedings;~~proceedings 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, ~~2018,~~2019, as updated by Part II, Item 1A. Risk Factors, included in our ~~subsequent quarterly reports~~Quarterly Report on Form ~~10-Q.~~10-Q for the quarter ended March 31, 2020 and this quarterly report on Form 10-Q for the quarter ended June 30, 2020. 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

~~Waste Management, Inc. is a holding company listed on the New York Stock Exchange under the symbol “WM” and all operations are conducted by its subsidiaries.~~ We are North America’s leading provider of comprehensive waste management environmental services. We partner with our residential, commercial, industrial and municipal customers and the communities we serve to manage and reduce waste at each stage from collection to disposal, while recovering valuable resources and creating clean, renewable energy. We own or operate the largest network of landfills in North America. 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. We also use waste to create energy, recovering the gas produced naturally as waste decomposes in landfills and using the gas in generators to make electricity. Additionally, we are a leading recycler in North America, handling materials that include paper, cardboard, glass, plastic and metal. Our “Solid Waste” business is operated and managed locally by our subsidiaries that focus on distinct geographic areas and provides collection, transfer, disposal, and recycling and resource recovery services. Through our subsidiaries, we are also a leading developer, operator and owner of landfill gas-to-energy facilities in the United States (“U.S.”).

Our Solid Waste operating revenues are primarily generated from fees charged for our collection, transfer, disposal, and recycling and resource recovery services, and from sales of commodities by our recycling and landfill gas-to-energy operations. Revenues from our collection operations are influenced by factors such as collection frequency, type of collection equipment furnished, type and volume or weight of the waste collected, distance to the disposal facility or

material recovery facility and our disposal costs. Revenues from our landfill operations consist of tipping fees, which are generally based on the type and weight or volume of waste being disposed of at our disposal facilities. Fees charged at transfer stations are generally based on the weight or volume of waste deposited, taking into account our cost of loading, transporting and disposing of the solid waste at a disposal site. Recycling revenues generally consist of tipping fees and

the sale of recycling commodities to third parties. The fees we charge for our services generally include our environmental fee, fuel surcharge and regulatory recovery fee which are intended to pass through to customers direct and indirect costs incurred. We also provide additional services that are not managed through our Solid Waste business, described under Results of Operations below.

COVID-19 Update

In January 2020, a novel strain of coronavirus (“COVID-19”) was declared a Public Health Emergency of International Concern and was subsequently declared a global pandemic in March 2020. We have contingency plans in place to ensure continuity of operations at our collection sites, transfer stations, landfills and recycling facilities. These plans ensure that we are in compliance with federal, state, provincial and local rules. Key elements of our business continuity plan have been executed consistently across the organization. Our safety team has medical experts and industrial hygienists that are continuously monitoring and incorporating guidance from the Centers for Disease Control and Prevention and other relevant authorities. To date our existing personal protective equipment, hygiene and operating procedures comply with guidelines established to protect our employees from additional risks associated with COVID-19.

The COVID-19 pandemic and related measures have had a significant adverse impact on many sectors of the economy. Waste Management provides essential services to a diverse customer base and, as a result, many elements of our business are less exposed to variability. Despite these favorable attributes of our business model, we expect the impacts of COVID-19 on our business to continue to be significant for the remainder of the year.

COVID-19 began to impact our business in mid-March 2020, the results of which are described in detail under Results of Operations below. The challenges posed by the COVID-19 pandemic on the global economy increased rapidly at the end of the first quarter of 2020 and have continued through the date of this report, impacting our business in most geographies and across a variety of our customer types. Steps taken by national and local governments to slow the spread of the virus, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing resulted in revenue declines at our landfills, as well as decreased demand from our industrial and commercial collection customers. Additionally, the cost to service our residential customers increased as stay-at-home orders and continuing work-from-home trends have increased the waste we collect in this line of business. With many government bodies taking steps to re-open communities and the economy, we started to see business activity and waste volumes increase from the lowest levels observed in April 2020. The landfill and commercial and industrial collection volume increases that followed the re-openings have been robust, but gradual, and our volumes continue to be meaningfully below prior year. Further, with some cities and states pausing or reversing re-openings, these improving volume trends may reverse in the near term.

The Company has proactively taken steps to put our employees’ and customers’ needs first and we continue to work with the appropriate regulatory agencies to ensure we can provide our essential services safely and efficiently. These efforts are, in some instances, reducing short-term revenues or increasing our costs, though they are sound decisions that reflect our focus on the long-term strength of our business. Examples of these efforts include:

Employees — We have prioritized the health, safety and financial security of our workforce. Key steps include: transitioning back-office employees to work-from-home, providing financial certainty to employees by guaranteeing all full-time hourly employees compensation for a 40-hour work week regardless of service decreases, securing additional personal protective equipment to bolster the safety and security of our workplaces and guaranteeing elements of incentive compensation to certain employees to reflect our appreciation for their dedication and focus on executing well in the face of the pandemic.

Customers — Our top priority with respect to our customers has been ensuring that our customers’ essential waste service needs continue to be safely met in spite of the unprecedented changes encountered in their communities. For

customers impacted by the COVID-19 pandemic, we have proactively waived and suspended certain ancillary service charges, deferred certain annual price increases, extended payment terms and adjusted customer service levels. Additionally, for qualifying small and medium businesses, we have provided customers with one-month of free service upon re-opening.

The above steps combined with our disciplined execution in our daily operations have positioned the Company to prudently manage the challenges presented by the COVID-19 pandemic. The fundamentals of the Company remain strong and we believe we have sufficient liquidity on hand to continue business operations during this volatile period. We estimate that COVID-19 has had the following notable impacts on our results of operations for the three- and six-month periods ended June 30, 2020:

Revenues — During the three and six months ended June 30, 2020, we experienced a negative impact to revenue of approximately $400 million and $440 million, respectively, that we attribute to reductions in customers’ waste service needs as a result of COVID-19. While the customer-centric steps discussed above and business closures have also contributed to this revenue decline, these impacts have been relatively immaterial.

Operating Expenses — Volume-driven revenue declines led to a significant reduction in certain variable operating expenses, including labor costs where we focused on reducing overtime hours and operating efficiently by adapting our routes for the lower volumes in our industrial and commercial collection lines of business. The reductions in most operating expense categories during the reported periods are directly related to proactive steps taken to manage our variable costs in the declining volume environment. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines, which negatively impacted operating costs as a percentage of revenues for certain cost categories. In spite of this, our proactive cost management efforts have positioned us to reduce our overall operating expenses as a percentage of revenues when compared with the prior year. These cost decreases have been partially offset by the impacts of (i) the 40-hour work week guarantee and (ii) increases in container weights in our residential collection line of business, which increased our overall cost to serve these customers.

Selling, General and Administrative Expenses — Our increase in the provision for bad debts of $12 million and $17 million for the three and six months ended June 30, 2020, respectively, is due in large part to negative impacts on customer receipts we have experienced and expect to continue to experience due to the COVID-19 pandemic. Additionally, we incurred $8 million and $14 million of costs during the three and six months ended June 30, 2020, respectively, primarily for (i) technology related costs as a result of our initiative to transition back-office employees to a work-from-home environment and (ii) costs incurred from guaranteeing elements of incentive compensation to certain employees.

The ultimate impacts of COVID-19 on our long-term outlook for the business will depend on future developments, including the duration of the pandemic and pace of economic recovery. These factors and their impacts on our business, financial condition, results of operations and cash flows are uncertain and cannot be predicted at this time. We remain focused on the diligent and safe execution of our daily operations, but are also now focused on the longer term to ensure that we come out of this pandemic a stronger, more differentiated company.

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 ~~are enabling~~have enabled a people-first, technology-led focus, that 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 the combination of cost control, process improvement and operational efficiency will deliver on the Company’s strategy of continuous improvement and yield an attractive total cost

structure and enhanced service quality. While we will continue to monitor emerging diversion technologies that may generate additional value and related market dynamics, our current attention will be on improving existing diversion technologies, such as our recycling operations. We believe ~~that~~the execution of our strategy will deliver shareholder value and leadership in a dynamic ~~industry.~~industry and challenging economic environment.

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. ~~Due to this, we~~We monitor these developments to adapt our services offerings. As companies, individuals and communities look for ways to be more sustainable, we ~~are promoting~~promote our comprehensive services that go beyond our core business of collecting and disposing of waste in order to meet their needs.

Despite some industry consolidation in recent years, we encounter intense competition from governmental, quasi-governmental and private service providers based on pricing, service quality, customer experience and breadth of service offerings. ~~We also encounter competition for acquisitions and growth opportunities.~~ Our industry is directly affected by changes in general economic factors, asincluding increases and decreases in consumer spending, business expansions and construction ~~starts~~starts. These factors generally correlate to volumes of waste generated and impact our ~~revenues.~~revenue. Negative economic conditions, including the impact of COVID-19, can and have caused customers to reduce their service needs. Such negative economic conditions, in addition to competitor actions, can ~~make~~and have made it more challenging to implement our pricing strategy and negotiate, renew or expand service contracts with acceptable ~~margins~~margins. We also encounter competition for acquisitions and ~~customers may reduce their service needs.~~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. ~~Our~~Significant components of our operating expenses ~~are~~vary directly ~~impacted by volume levels;~~ as ~~volume levels shift,~~we experience changes in revenue due to ~~economic~~volume. Volume changes can vary dramatically by line of business and ~~other factors,~~decreases in volumes in higher margin businesses, such as what we have seen with COVID-19, can impact key financial metrics, particularly operating expense as a percentage of revenue. In this type of environment, we must dynamically manage our ~~network capacity~~cost structure.

Our financial results for the three and ~~cost structure accordingly.~~

~~The first nine~~six months of 2019 have benefited from a generally favorable macro-economic environment, including steady spending by consumers and businesses, which have led to volume and gross margin growth. We continued to see growthended June 30, 2020 reflect declines in our collection and disposal lines of business ~~particularly~~as a result of the negative impacts of COVID-19. These impacts began in March 2020 and continued through the second quarter of 2020. Given the current pressures on the business from COVID-19, we are taking proactive steps to reduce costs and maximize cash flow. These steps include (i) optimizing our route structure to respond proactively to lower industrial and commercial collection volumes; (ii) reducing overtime hours to manage labor costs; (iii) limiting hiring and optimizing the existing workforce through greatly improved retention and reduced turnover and (iv) reducing or eliminating certain non-essential costs and expenses like consulting, travel and entertainment. Additionally, to enhance our liquidity, we are maintaining a disciplined focus on capital management by aligning additional investment with the revenue generation of the business, reducing capital spending on our landfill assets, and managing container capital in conjunction with our customers’ volumes. We have also elected to temporarily suspend additional share repurchases for the foreseeable future.

COVID-19 has also had impacts on the recycling line of business, including the creation of a short-term dislocation in the ~~segments~~supply and demand dynamics for recycled commodities in the U.S. While the recent decline in supply of recycled content drove an increase in market prices for certain commodities, we remain steadfast in our ~~business driven by~~commitment to improve the ~~consumer portion~~profitability and returns of the ~~economy. The volume growth is the result~~recycling line of ~~proactive efforts taken to work with~~business. We have maintained our customers as their needs expand to identify service upgrade opportunities and growth in our municipal solid waste business. Our landfill volumes have also been favorably impacted by clean-up efforts from natural disasters in California during 2019 and event-driven projects. The portion of our business driven by the industrial segment of the economy, such as special waste, continues to show growth, although the pace of growth is starting to moderate as large industrial customers take a more cautious approach to awarding work. Additionally, our continued focus on ~~developing~~converting to a ~~sustainable recycling business~~fee-based pricing model that ~~meets customers’ environmental needs by passing through~~addresses the ~~increasing~~ cost of processing materials and ~~higher~~the impact on our cost structure to manage contamination ~~rates led~~in the waste stream.

We believe that the Company’s industry-leading asset network and strategic focuses on investing in people and technology will give the Company the necessary tools to ~~continued improved operating results~~address the challenges presented by the COVID-19 pandemic and the impacts on our industry. In line with our commitment to continuous improvement and a differentiated customer experience, we are accelerating our customer service digitalization initiative to change the way we interact with our customers. Enhancements made through this initiative are designed to seamlessly and digitally connect all the ~~first nine months of 2019; however, with~~WM functions required to service our customers in order to provide the best experience and service.

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~~continued pressure from lower recycling commodity prices, we expect operating results for our recycling business in 2019 to be lower when compared to 2018.~~

Current ~~Quarter~~Period Financial Results

During the ~~third~~second quarter of ~~2019, we continued to produce strong~~2020, our operating results ~~from~~for our collection and disposal lines of business ~~driven~~were negatively influenced by ~~favorable market conditions~~the impacts of the COVID-19 pandemic; however, we took intentional steps to decrease our operating costs and eliminate discretionary selling, general and administrative expenses to mitigate the impact from the declines in our ~~continued focus on delivering an outstanding customer experience and continuous improvement. The Company continued its commitment~~volumes. In addition to ~~supporting both organic and inorganic growth during the third quarter of 2019, allocating $483 million of available cash~~reducing costs, we took proactive steps to manage our capital ~~expenditures and $76 million to the acquisition of solid waste businesses. We also allocated $218 million to our shareholders during the third quarter of 2019 through dividends.~~spending.

Key elements of our financial results for the current quarter include:

●

Revenues of ~~$3,967~~$3,561 million, compared with ~~$3,822~~$3,946 million in the prior year period, ~~an increase~~a decrease of ~~$145~~$385 million, or ~~3.8%~~9.8%. The ~~increase is primarily attributable to~~year-over-year comparison has been negatively impacted by volume declines resulting from a reduction in customers’ waste service needs associated with the COVID-19 pandemic. In addition, the Company’s year-over-year revenue comparison was impacted by (i) ~~higher collection~~natural disaster clean-up efforts in 2019 that did not reoccur in the current period and ~~landfill volume growth~~(ii) a decline of $60 million from lower fuel surcharges due to ~~favorable~~a significant decrease in market ~~conditions; (ii) increased yield~~rates for diesel fuel. These revenue declines have been partially offset by increases in ~~our~~revenue from collection and disposal ~~business~~yield and ~~(iii) acquisitions, partially offset by lower market prices for~~ recycling ~~commodities;~~yield, which includes both higher fees and higher commodity prices;

●

Operating expenses of ~~$2,441~~$2,180 million, or ~~61.5%~~61.2% of revenues, compared with ~~$2,373~~$2,443 million, or ~~62.1%~~61.9% of revenues, in the prior year period. The ~~$68~~$263 million ~~increase~~decrease is primarily attributable to ~~higher volumes and cost inflation~~proactive steps taken to manage our variable costs in the ~~current year period, partially offset by decreased cost of goods sold primarily~~declining volume environment. The revenue declines due to ~~lower market prices for recycling commodities;~~the COVID-19 pandemic have had a greater impact on our higher margin business lines, which negatively impacted operating costs as a percentage of revenues. In spite of this, our proactive cost management efforts have positioned us to reduce operating expenses as a percentage of revenues when compared with the prior year;

●

Selling, general and administrative expenses of ~~$386~~$377 million, or ~~9.7%~~10.6% of revenues, compared with ~~$345~~$391 million, or 9.0% of revenues, in the prior year period. This increase of $41 million is primarily attributable to higher costs associated with planned investments in our people and technology, increased acquisition-related costs and litigation reserves;

●

~~Income from operations of $734 million, or 18.5% of revenues, compared with $699 million, or 18.3%~~9.9% of revenues, in the prior year period. The ~~current year period~~year-over-year decrease is ~~favorably impacted~~primarily attributable to lower incentive compensation accruals and the proactive steps that we have taken to defer hiring and discretionary expenses. These cost reductions were partially offset by ~~strong operating results primarily~~(i) increased acquisition-related costs; (ii) higher costs associated with investments in our ~~collection~~people and ~~disposal business, partially offset~~technology and (iii) costs incurred as a direct result of the COVID-19 pandemic, including increased provision for bad debts;

●

Income from operations was $527 million, or 14.8% of revenues, compared with $696 million, or 17.6% of revenues, in the prior year period. The year-over-year comparison has primarily been affected by (i) the overall negative impact of the COVID-19 pandemic to our business; (ii) non-cash impairment charges of $61 million including $41 million primarily related to two landfills and an oil field waste injection facility in our Tier 1 segment; (iii) an increase in spending for the planned acquisition of Advanced Disposal and (iv) investments we are making in ~~technology. Additionally, the prior year period was unfavorably impacted by the impairment of a landfill;~~technology;

●

Net income attributable to Waste Management, Inc. was ~~$495~~$307 million, or ~~$1.16~~$0.72 per diluted share, compared with ~~$499~~$381 million, or ~~$1.16~~$0.89 per diluted share, in the prior year period. ~~Net~~In addition to the activity discussed above, net income in the ~~third quarter of 2019~~current period was also impacted by an increase in net interest expense ~~resulting from our May 2019 issuance~~due to the planned acquisition of ~~$4.0 billion in senior notes, discussed further below in~~ ~~Liquidity and Capital Resources~~~~, and an increase in our current quarter~~Advanced Disposal, which was partially offset by lower income tax ~~expense;~~expense. The prior year period was also impacted by a pre-tax loss of $84 million associated with the early extinguishment of debt;

●

Net cash provided by operating activities was ~~$952~~$856 million compared with ~~$874~~$1,010 million in the prior year ~~period;~~period with the decline driven by lower earnings on our core operations and an unfavorable working capital change, both of which have been primarily caused by the impact of the COVID-19 pandemic. These negative cash flow impacts have been partially offset by lower income tax payments in the current year period and cash benefits associated with deferring certain payroll taxes as provided for by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”); and

●

Free cash flow was ~~$478~~$423 million compared with ~~$480~~$440 million in the prior year period. The ~~increase~~slight decrease in free cash flow is due to the decrease in net cash provided by operating activities noted above, which was substantially offset by an ~~increase~~intentional reduction in capital ~~expenditures resulting from~~expenditures. We have taken proactive steps to reduce the amount of capital spending required to align with the lower volumes in our intentional focus on accelerating certain collection fleet and landfill spending to support the Company’s strong collection and disposal growth, which resulted in free cash flow being relatively flat on a year-over-year basis.business. 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.

Results of Operations

Operating Revenues

We evaluate, oversee and manage the financial performance of our Solid Waste business subsidiaries through our 17 Areas. We also provide additional services that are not managed through our Solid Waste business, including operations managed by both our Strategic Business Solutions (“WMSBS”) and Energy and Environmental Services (“EES”) organizations, recycling brokerage services, landfill gas-to-energy services and certain other expanded service offerings and solutions. The mix of operating revenues from our major lines of business is reflected in the table below (in millions):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Commercial	$	1,069	$	1,007	$	3,147	$	2,948	$	928	$	1,052	$	1,991	$	2,078
Residential		661		639		1,956		1,885		657		655		1,307		1,295
Industrial		766		723		2,190		2,068		625		744		1,318		1,424
Other		130		117		361		333
Other collection										115		122		227		231
Total collection		2,626		2,486		7,654		7,234		2,325		2,573		4,843		5,028
Landfill		993		926		2,880		2,646		874		1,023		1,761		1,887
Transfer		471		445		1,357		1,257		439		474		880		886
Recycling		245		337		800		954		275		264		529		555
Other (a)		469		430		1,345		1,296		409		445		839		876
Intercompany (b)		(837)		(802)		(2,427)		(2,315)		(761)		(833)		(1,562)		(1,590)
Total	$	3,967	$	3,822	$	11,609	$	11,072	$	3,561	$	3,946	$	7,290	$	7,642

(a)

(b)	Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included within this report.

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The following table provides details associated with the period-to-period changes in revenues and average yield (dollars in millions):


	Period-to-Period Change for the Three Months Ended September 30, 2019 vs. 2018									Period-to-Period Change for the Nine Months Ended September 30, 2019 vs. 2018							Period-to-Period Change for the Three Months Ended June 30, 2020 vs. 2019									Period-to-Period Change for the Six Months Ended June 30, 2020 vs. 2019
			As a % of				As a % of				As a % of				As a % of				As a % of				As a % of				As a % of				As a % of
			Related				Total				Related				Total				Related				Total				Related				Total
	Amount		Business(a)		Amount		Company(b)		Amount		Business(a)		Amount		Company(b)		Amount		Business(a)		Amount		Company(b)		Amount		Business(a)		Amount		Company(b)
Collection and disposal	$	87	2.6	%					$	256	2.7	%					$	55	1.6	%					$	127	1.9	%
Recycling commodities(c)		(73)	(22.6)							(139)	(15.3)							24	9.6							(35)	(6.5)
Fuel surcharges and mandated fees		(10)	(6.3)							(3)	(0.7)							(60)	(36.6)							(76)	(24.3)
Total average yield ~~(c)~~(d)					$	4	0.1	%					$	114	1.0	%					$	19	0.5	%					$	16	0.2	%
Volume						98	2.6							361	3.3							(406)	(10.3)							(396)	(5.2)
Internal revenue growth						102	2.7							475	4.3							(387)	(9.8)							(380)	(5.0)
Acquisitions						57	1.5							173	1.6							10	0.3							39	0.5
Divestitures						(12)	(0.3)							(94)	(0.9)							(1)	—							(2)	—
Foreign currency translation						(2)	(0.1)							(17)	(0.1)							(7)	(0.3)							(9)	(0.1)
Total					$	145	3.8	%					$	537	4.9	%					$	(385)	(9.8)	%					$	(352)	(4.6)	%

(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 and changes in fees.

(d)	The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company.

The following provides further details associated with 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 lines of business, exclusive of volume changes. Revenue growth from collection and disposal average yield includes not only base rate changes and environmental and service fee increases, 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				Period-to-Period Change for the				Period-to-Period Change for the				Period-to-Period Change for the
	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2019 vs. 2018				September 30, 2019 vs. 2018				June 30, 2020 vs. 2019				June 30, 2020 vs. 2019
			As a % of				As a % of				As a % of				As a % of
			Related				Related				Related				Related
	Amount		Business		Amount		Business		Amount		Business		Amount		Business
Commercial	$	23	2.5	%	$	65	2.4	%	$	17	1.8	%	$	39	2.1	%
Industrial		25	3.8			77	4.0			7	1.0			30	2.3
Residential		20	3.2			62	3.4			16	2.5			28	2.2
Total collection		68	2.9			204	3.0			40	1.7			97	2.1
Landfill		11	2.0			31	1.9			8	1.2			17	1.4
Transfer		8	3.3			21	3.1			7	2.6			13	2.7
Total collection and disposal	$	87	2.6	%	$	256	2.7	%	$	55	1.6	%	$	127	1.9	%

~~Our~~We are monitoring COVID-19 and taking steps to mitigate the potential business impact to our customers. In order to support the continuity of our customers’ businesses, we have made certain customer-centric pricing decisions such as temporarily waiving and suspending certain ancillary service charges as well as delaying price increases in certain markets, which has negatively impacted our average yield. However, our overall strategic pricing ~~efforts focus~~effort focused on ~~ensuring we overcome inflationary cost pressures and grow margins. This strategy~~improving our average unit rate has ~~been most successful~~proven to be effective despite the COVID-19 pandemic, particularly in our ~~collection~~commercial business. We are also experiencing solid growth in our landfill and transfer businesses, with our municipal solid waste business experiencing 3.7% and 3.6% average yield growth for the three and nine months ended September 30, 2019, respectively, as compared with the prior year periods.

Recycling Commodities — ~~Decreases~~During the three months ended June 30, 2020, we experienced a 30% increase in average market prices, when compared to the prior year, due to demand for recycled material in the U.S. exceeding supply. We expect this dislocation will normalize and overall, average market prices for recycling commodities ~~resulted in revenue decline of $73 million and $139 million for~~are expected to remain meaningfully below long-term averages. For the ~~three and nine~~six months ended ~~September~~June 30, ~~2019, respectively, as compared with the prior year periods. We partially offset our revenue decline from~~2020, average market prices for recycling commodities ~~by assessing~~were down 3.5% compared to the prior year. Our efforts to assess fees to cover the higher costs of handling contaminated recycling ~~materials. Average~~materials continue to provide a mechanism to offset the decline in market value of commodity prices, ~~for recycling commodities at~~though with the ~~Company’s facilities were almost 40%~~impacts of COVID-19 on customers and ~~33% lower for~~market conditions, we did not experience a significant increase in these fees during the three and ~~nine~~six months ended ~~September~~June 30, 2019, respectively, as compared with the prior year periods. We have seen decreased demand from paper mills around the world which has driven prices to historical low averages. There are several domestic mill projects anticipated to start within the next twelve months that we expect will add additional capacity and more local demand for recycled materials. However, we do not expect material changes in market prices for recycling commodities as a result of this additional capacity. The cardboard packaging industry has been impacted by slower global demand, retail store closures and e-commerce packaging efficiency. We expect slower global demand to remain through 2019, which will continue to put downward pressure on average market prices for recycling commodities.2020.

Fuel Surcharges and Mandated Fees — These fees, which are predominantly generated by our fuel surcharge program, declined $60 million and $76 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, respectively, as compared with the prior year periods. ~~Fuel surcharge~~These revenues are based on, and fluctuate in response to, changes in the national average prices for diesel fuel. ~~This decline was partially offset by~~Given the downturn in oil and gas markets, market prices for diesel fuel decreased over 20% and 13% for the three and six months ended June 30, 2020, respectively, compared with the prior year periods. Additionally, we have taken steps to transition certain customers’ pricing away from non-variable fuel structures, which has further contributed to the year-over-year decline.

The mandated fees ~~which~~ 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 three and six months ended June 30, 2020.

Volume

Our revenues from volumes ~~increased $98~~(excluding volumes from acquisitions and divestitures) decreased $406 million, or ~~2.6%~~10.3%, and ~~$361~~$396 million, or ~~3.3%~~5.2%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, as compared with the prior year ~~periods, excluding volumes from acquisitions~~periods.

Beginning in March 2020 and ~~divestitures.~~

~~We experienced higher volumes due to favorable market conditions in~~continuing throughout the second quarter of 2020, our industrial and commercial collection and ~~disposal business and~~ our ~~focus on customer service and disciplined growth. We have~~landfill businesses experienced significant volume ~~growth with existing customers, particularly in our commercial collection business. The volume growth is the~~declines as a result of ~~proactive efforts taken~~the COVID-19 pandemic. These volume decreases were the most pronounced in April 2020. With many government bodies taking steps to ~~work with our customers as their needs expand~~re-open communities and the economy, in May and June 2020, we started to ~~identify service upgrade opportunities. Our landfill~~see business activity and waste volumes increase from the lowest levels observed in April 2020. While volume increases following the re-openings have been ~~favorably impacted by clean-up efforts from natural disasters in California during 2019, event-driven projects in~~robust, our ~~special waste business and growth in our municipal solid waste business. Additionally, we experienced favorable volume growth from our WMSBS organization.~~volumes

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continue to be meaningfully below prior year. Further, with some cities and states pausing or reversing re-openings, these improving volume trends may reverse in the near term.

In addition, the natural disaster clean-up efforts in the first six months of 2019 did not reoccur in the current year period further impacting our year-over-year volume comparison.

Operating Expenses

The following table summarizes the major components of our operating expenses (in millions of dollars and as a percentage of revenues):


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,								September 30,								June 30,								June 30,
	2019				2018				2019				2018				2020				2019				2020				2019
Labor and related benefits	$	717	18.1	%	$	681	17.8	%	$	2,087	18.0	%	$	2,008	18.1	%	$	636	17.9	%	$	703	17.8	%	$	1,325	18.2	%	$	1,370	17.9	%
Transfer and disposal costs		304	7.7			285	7.5			867	7.5			824	7.4			267	7.5			300	7.6			545	7.5			563	7.4
Maintenance and repairs		345	8.7			320	8.4			1,012	8.7			934	8.4			303	8.5			344	8.7			638	8.8			667	8.7
Subcontractor costs		404	10.2			355	9.3			1,140	9.8			1,006	9.1			357	10.0			388	9.8			728	10.0			736	9.6
Cost of goods sold		123	3.1			202	5.3			435	3.7			582	5.3			140	3.9			142	3.6			258	3.5			312	4.1
Fuel		101	2.5			111	2.9			306	2.6			299	2.7			57	1.6			104	2.7			133	1.8			205	2.7
Disposal and franchise fees and taxes		164	4.1			155	4.0			471	4.1			444	4.0			144	4.0			164	4.2			289	4.0			307	4.0
Landfill operating costs		92	2.3			80	2.1			283	2.4			240	2.2			92	2.6			100	2.5			201	2.8			191	2.5
Risk management		69	1.7			70	1.8			204	1.8			175	1.6			62	1.7			71	1.8			131	1.8			135	1.8
Other		122	3.1			114	3.0			377	3.3			358	3.2			122	3.5			127	3.2			261	3.5			255	3.3
	$	2,441	61.5	%	$	2,373	62.1	%	$	7,182	61.9	%	$	6,870	62.0	%	$	2,180	61.2	%	$	2,443	61.9	%	$	4,509	61.9	%	$	4,741	62.0	%

~~The increase in volumes in the current year periods, as~~As discussed above in Operating Revenues~~affects~~, year-over-year decreases in our landfill and industrial and commercial collection volumes, primarily due to the ~~comparability~~impacts of COVID-19, have significantly impacted the three- and six-month periods ended June 30, 2020. The reductions in most operating expense categories during the reported periods are directly related to proactive steps taken to manage our variable costs in the declining volume environment. The revenue declines due to the COVID-19 pandemic have had a greater impact on our higher margin business lines, which negatively impacted operating costs as a percentage of revenues for certain cost categories. In spite of this, our proactive cost management efforts have positioned us to reduce our overall operating expenses ~~primarily in transfer and disposal, subcontractor, and disposal and franchise fees and taxes for~~as a percentage of revenues when compared with the ~~periods presented. In addition, cost inflation affects the comparability of operating expenses.~~prior year.

~~Other significant~~Significant items affecting the comparability of operating expenses for the reported periods include:

Labor and Related Benefits — The ~~increase~~decrease in labor and related benefits costs was largely driven by decreases in volume which allowed us to take proactive measures to optimize routes and reduce overtime hours. Additionally, the decrease was due to (i) improved efficiency from lighter road traffic; (ii) lower incentive compensation costs and (iii) reduced health and welfare costs. These decreases were partially offset by annual merit increases. We have guaranteed full-time hourly employees a minimum of 40-hours of pay during the COVID-19 pandemic regardless of service decreases. This employee-focused effort had a minimal impact to labor costs during the reported periods, and the Company believes that these increased costs were offset by benefits from reduced employee turnover and improved employee morale.

Transfer and Disposal Costs — The decrease in transfer and disposal costs was largely driven by volume ~~growth~~declines in our industrial and commercial collection ~~business~~businesses as ~~well as cost inflation noted above. These cost increases were offset, in part, by lower bonus costs related to~~ a ~~plan established in early 2018 targeted at improving employee retention.~~result of COVID-19.

Maintenance and Repairs — The ~~increase~~decrease in maintenance and repairs costs was largely driven by ~~cost inflation noted above which primarily impacted labor,~~proactive steps to optimize routes and reduce overtime hours to address the volume declines. The most significant components of our non-labor savings were spending on parts, supplies and third-party ~~services, tires and building costs.~~container repairs. In addition, the ~~nine~~three and six months ended ~~September~~June 30, 2019 were impacted by a $16 million non-cash charge to write off certain equipment costs ~~in the second quarter of 2019~~ related to our Other segment.

Subcontractor Costs — The decrease in subcontractor costs for the three months ended June 30, 2020 was largely driven by the COVID-19 related volume declines in our industrial and commercial collection businesses. For the six months ended June 30, 2020, subcontractor costs were generally flat, which can be attributed to an increase in business activity in our WMSBS and EES businesses during the first quarter of 2020, prior to COVID-19 impacting business activity in North America. These businesses rely more extensively on subcontracted hauling than our collection and disposal business.

Cost of Goods Sold — ~~The decrease~~Market prices for recycled commodities is the primary driver for the variability in our cost of goods sold. Cost of goods sold was ~~primarily driven by lower~~relatively flat when comparing the three months ended June 30, 2020 with the prior year period due to the offsetting impacts of a decline in recycling volumes and an increase in the market prices for ~~recycling~~recycled commodities. ~~In addition,~~For the ~~nine months ended September 30, 2019 was impacted by lower~~six-month comparison, there is a significant decrease in costs of goods sold due to the ~~sale~~combined impacts of ~~certain ancillary operations~~a decline in recycling volumes and a decrease in the ~~second quarter of 2018.~~market prices for recycled commodities.

Fuel — The decrease in fuel costs ~~for the three months ended September 30, 2019~~ was primarily due to ~~lower~~(i) a benefit from federal alternative fuel credits; (ii) a decline in market prices for diesel ~~fuel.~~ fuel; (iii) volume declines and (iv) lower costs resulting from the continued conversion of our fleet to natural gas vehicles.

Disposal and Franchise Fees and Taxes — The ~~increase during~~decrease in disposal and franchise fees and taxes for the ~~nine months ended September 30, 2019~~reported periods was primarily related to lower volumes in our landfill line of business, largely driven by ~~a $28 million benefit from federal natural gas fuel credits received in~~ the ~~first quarter~~impact of ~~2018 that did not extend into 2019, partially offset by lower prices for diesel fuel.~~COVID-19.

Landfill Operating Costs — The increase in costs for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was primarily due to higher leachate management costs ~~driven largely by inclement weather in certain parts of North America.~~compared to the prior year period. Additionally, the ~~nine months ended September 30, 2019 includes a~~six-month periods included charges of $10 million in the first quarter of 2020 and $7 million ~~charge~~in the second quarter of 2019, due to decreases in the risk-free discount rate, which is based on the rate for U.S. Treasury bonds, used in the ~~remeasurement~~measurement of our environmental remediation obligations and recovery assets due to a decrease in U.S. treasury rates, which are used in determining the risk-free discount rate for these balances. See Note 2 to the Condensed Consolidated Financial Statements for additional information.assets. This increase was partially offset by declining volumes at our landfills.

Risk Management — The ~~increase for the nine months ended September 30, 2019~~decrease in risk management costs was primarily due to certain large loss claims in the ~~result of higher~~prior-year periods, and to a lesser extent, a reduction in claims ~~costs~~during the 2020 periods that we attribute to the COVID-19 decline in ~~our collection business.~~business activity.

Selling, General and Administrative Expenses

The following table summarizes the major components of our selling, general and administrative expenses (in millions of dollars and as a percentage of revenues):


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,								September 30,								June 30,								June 30,
	2019				2018				2019				2018				2020				2019				2020				2019
Labor and related benefits	$	254	6.4	%	$	231	6.0	%	$	769	6.6	%	$	723	6.5	%	$	228	6.4	%	$	250	6.3	%	$	474	6.5	%	$	515	6.7	%
Professional fees		36	0.9			29	0.8			114	1.0			82	0.7			54	1.5			43	1.1			114	1.6			78	1.0
Provision for bad debts		7	0.2			13	0.3			26	0.2			34	0.3			22	0.6			10	0.3			36	0.5			19	0.3
Other		89	2.2			72	1.9			277	2.4			244	2.3			73	2.1			88	2.2			178	2.4			188	2.5
	$	386	9.7	%	$	345	9.0	%	$	1,186	10.2	%	$	1,083	9.8	%	$	377	10.6	%	$	391	9.9	%	$	802	11.0	%	$	800	10.5	%

As a result of the negative impacts of COVID-19 on our business, we have reduced incentive compensation accruals, and we have taken proactive steps to reduce discretionary expenses, both of which have decreased selling, general and administrative expenses. These cost reductions have been largely offset by incremental costs incurred in connection with the planned acquisition and integration of Advanced Disposal, investments in technology and increased provision for bad debts. Selling, general and administrative expenses as a percentage of revenue measures have increased in 2020 due to the decrease in volume-related revenues. Significant items affecting the comparison of our selling, general and administrative expenses between the reported periods include:

Labor and Related Benefits — The ~~increase was~~decrease in labor and related benefits costs is primarily ~~due~~related to ~~(i) an increase in headcount and merit increases and (ii) increased contract labor costs driven by our planned investments in technology. Additionally, the nine-month period was impacted by higher~~lower incentive compensation ~~in 2019.~~accruals, lower health and welfare costs and proactive steps to defer hiring, all of which we attribute to the COVID-19 pandemic impacts on our business. These cost decreases were partially offset by annual merit increases.

Professional Fees — The increase in professional fees was primarily driven by ~~higher~~ consulting fees ~~largely due~~incurred as we plan for the acquisition and integration of Advanced Disposal. In addition, we continue to ~~our~~make strategic investments in operating, ~~customer facing~~customer-facing and back-office technologies, ~~as well as costs incurred~~including the implementation of a new enterprise resource planning system. We are also investing in ~~preparation~~and accelerating our customer service digitalization platform, which will connect all the WM functions required to service our customers.

Provision for ~~our pending acquisition of Advanced Disposal Services, Inc. (“Advanced Disposal”).~~Bad Debts — The increase in the provision for bad debts can primarily be attributed to the estimated impact from the COVID-19 pandemic resulting in increased collection risks associated with certain customers.

Other — The ~~increase~~decrease in other expenses was ~~principally driven~~primarily due to proactive measures taken to reduce discretionary costs company wide. Litigation reserves have also declined in 2020. These cost decreases have been partially offset by ~~higher litigation reserves and~~ increased infrastructure costs in 2020 associated with our ongoing investments in ~~technology.~~technology as well as incremental technology costs incurred to transition employees to work-from-home in response to the COVID-19 pandemic.

Depreciation and Amortization Expenses

The following table summarizes the components of our depreciation and amortization expenses (in millions of dollars and as a percentage of revenues):


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,								September 30,								June 30,								June 30,
	2019				2018				2019				2018				2020				2019				2020				2019
Depreciation of tangible property and equipment	$	225	5.7	%	$	208	5.4	%	$	659	5.7	%	$	624	5.6	%	$	242	6.8	%	$	221	5.6	%	$	482	6.6	%	$	434	5.7	%
Amortization of landfill airspace		152	3.8			143	3.7			440	3.8			409	3.7			148	4.1			161	4.1			286	3.9			288	3.7
Amortization of intangible assets		27	0.7			25	0.7			80	0.7			74	0.7			24	0.7			27	0.7			48	0.7			53	0.7
	$	404	10.2	%	$	376	9.8	%	$	1,179	10.2	%	$	1,107	10.0	%	$	414	11.6	%	$	409	10.4	%	$	816	11.2	%	$	775	10.1	%

The increase in depreciation of tangible property and equipment during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the prior year periods, was primarily ~~due~~related to ~~higher~~investments in capital ~~expenditures in the current year periods due to an intentional focus on accelerating certain fleet~~assets, including trucks and ~~landfill spending to support the Company’s strong collection and disposal growth.~~facilities. The ~~increase~~decrease in amortization of landfill airspace during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to the prior year periods, was ~~primarily~~ driven by ~~increased volumes.~~lower volumes at our landfills as a result of the COVID-19 pandemic, partially offset by changes in landfill estimates largely driven by increases in landfill construction costs.

(Gain) Loss from Divestitures, Asset Impairments and Unusual Items, Net

Energy Services Asset Impairments — During the second quarter of ~~$43 million from~~2020, the ~~sale~~Company tested the recoverability of certain ~~ancillary operations, which were partially offset by a $29 million charge to impair a landfill~~energy services assets in our Tier ~~3 segment~~1 segment. Indicators of impairment included (i) the sharp downturn in oil demand that has led to a significant decline in oil prices and production activities, which we project will have long-term impacts on the utilization of our assets and (ii) significant shifts in our business, including increases in competition and customers choosing to bury waste on site versus in a landfill, reducing our revenue outlook. The Company determined that the carrying amount of the asset group was not fully recoverable. As a result, we recognized ~~during~~$41 million of non-cash impairment charges primarily related to two landfills and an oil field waste injection facility in our Tier 1 segment. We wrote down the ~~third quarter~~net book value of ~~2018.~~these assets to their estimated fair value using an income approach based on estimated future cash flow projections (Level 3). The aggregate fair value of the impaired asset group was $8 million as of June 30, 2020. The Company tested the recoverability of an additional $239 million in energy services assets and determined that the carrying amount was recoverable as of June 30, 2020.

4037

Other Impairments — In addition to the energy services impairments noted above, we recognized a $20 million non-cash impairment charge in our Tier 3 segment due to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace, which was considered an impairment indicator. As the carrying value was not recoverable, we wrote off the entire net book value of the asset using an income approach based on ~~an internally developed discounted projected~~estimated future cash flow ~~analysis, taking into account continued volume decreases~~projections (Level 3). The impairment charge was comprised of $12 million related to the carrying value of the asset and ~~revised~~$8 million related to the acceleration of the expected timing of capping, ~~cost estimates for~~closure and post-closure activities, which is discussed further in Note 2 to the ~~landfill.~~Condensed Consolidated Financial Statements.

Income from Operations

The following table summarizes income from operations for our reportable segments (dollars in millions):


	Three Months Ended										Nine Months Ended										Three Months Ended										Six Months Ended
	September 30,						Period-to-Period				September 30,						Period-to-Period				June 30,						Period-to-Period				June 30,						Period-to-Period
	2019			2018			Change				2019			2018			Change				2020			2019(c)			Change				2020			2019(c)			Change
Solid Waste:
Tier 1	$	432		$	416		$	16	3.8	%	$	1,258		$	1,176		$	82	7.0	%	$	316		$	434		$	(118)	(27.2)	%	$	709		$	832		$	(123)	(14.8)	%
Tier 2		153			142			11	7.7			437			405			32	7.9			182			230			(48)	(20.9)			370			430			(60)	(14.0)
Tier 3		351			291			60	20.6			1,005			877			128	14.6			222			282			(60)	(21.3)			486			552			(66)	(12.0)
Solid Waste		936			849			87	10.2			2,700			2,458			242	9.8			720			946			(226)	(23.9)			1,565			1,814			(249)	(13.7)
Other(a)		(36)			(15)			(21)	*			(124)			(25)			(99)	*			(10)			(49)			39	(79.6)			(35)			(67)			32	(47.8)
Corporate and Other(b)		(166)			(135)			(31)	23.0			(525)			(411)			(114)	27.7			(183)			(201)			18	(9.0)			(430)			(430)			—	0.0
Total	$	734		$	699		$	35	5.0	%	$	2,051		$	2,022		$	29	1.4	%	$	527		$	696		$	(169)	(24.3)	%	$	1,100		$	1,317		$	(217)	(16.5)	%
Percentage of revenues		18.5	%		18.3	%						17.7	%		18.3	%						14.8	%		17.6	%						15.1	%		17.2	%

* Percentage change does not provide a meaningful comparison.

(a)

“Other” includes (i) our WMSBS organization; (ii) those elements of our landfill gas-to-energy operations and third-party subcontract and administration revenues managed by our EES and WM Renewable Energy organizations that are not included in the operations of our reportable segments; (iii) our recycling brokerage services and (iv) certain other expanded service offerings and solutions. In addition, our “Other” segment reflects the results of non-operating entities that provide financial assurance and self-insurance support for our Solid Waste business, net of intercompany activity.

(b)

(c)

In 2020, we revised allocations between our segments including (i) the discontinuation of certain allocations from Corporate and Other to Solid Waste and (ii) allocating certain insurance costs from Other to Solid Waste. Reclassifications have been made to our prior period information for comparability purposes.

The significant items affecting income from operations for our segments during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, as compared with the prior year periods, are summarized below:

●

Solid Waste — ~~The increase~~Income from operations in ~~income~~our Solid Waste business decreased significantly on a year-over-year basis due to the overall negative impact of the COVID-19 pandemic and non-cash impairment charges taken

during the second quarter of 2020. Income from operations for ~~our collection and disposal business~~all Tiers was ~~primarily driven by internal revenue growth. Additionally, the 2018 periods were~~ impacted by ~~the impairment of a landfill in our Tier 3 segment. This~~revenue declines from lower volumes as well as an increase was offset, in part, by (i) higher operating costs, driven by increased volumes, higher depreciation related to new trucks and equipment and higher labor, maintenance and repair costs; (ii) lower recycling commodity prices and (iii) federal natural gas fuel credits received in the ~~first quarter of 2018 that did not extend into 2019.~~provision for bad debts.

Income from operations for our Tier 1 segment was impacted by $41 million of non-cash asset impairment charges primarily related to two landfills and an oil field waste injection facility. Our Tier 2 segment income from operations was impacted by natural disaster clean-up efforts in 2019 that did not reoccur in the current year period. Income from operations for our Tier 3 segment was impacted by a $20 million non-cash impairment charge related to management’s decision to close a landfill once its constructed airspace is filled and abandon any remaining permitted airspace.

●

Other — ~~Lower income~~Income from operations ~~is a result of~~for the Other segment for the three and six months ended June 30, 2020 was impacted by (i) ~~net gains from divestitures of certain ancillary operations in the prior year periods; (ii)~~ a $16 million non-cash charge to write off certain equipment costs in the ~~second quarter of 2019~~prior year periods and ~~(iii) increases~~(ii) decreases in risk management ~~costs as a result of higher claims costs in our collection business.~~costs.

●

Corporate and Other — The ~~decrease~~favorable change in the income from operations measurement for the three months ended June 30, 2020 was primarily driven by ~~increased expenses as a result of~~ (i) ~~higher consulting fees, largely due to the investments we are making in operating, customer facing~~lower health and ~~back-office technologies;~~welfare costs; (ii) ~~increased group insurance costs;~~lower incentive compensation accruals and (iii) ~~additional litigation reserves; (iv) preparation for our pending acquisition of Advanced Disposal and (v)~~ a $7 million charge ~~for~~related to the remeasurement of our environmental remediation obligations and recovery assets in the prior year, which more than offset increased expenses as a result of (i) preparation for our acquisition of Advanced Disposal; (ii) investments we are making in technology and (iii) incremental costs associated with COVID-19 pandemic. The income from operations measurement is flat for the six-month periods because (i) the above-mentioned cost reductions for health and welfare and incentive compensation were more significant in the second quarter of ~~2019. Additionally,~~2020 given the timing of the impacts of COVID-19 on our business and (ii) we ~~recognized higher incentive compensation costs during~~recorded a $10 million charge related to the ~~nine months ended September 30, 2019.~~remeasurement of our environmental remediation obligations in the first quarter of 2020.

Interest Expense, Net

Our interest expense, net was ~~$105~~$119 million and ~~$301~~$231 million ~~during~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, compared to ~~$93~~$100 million and ~~$277~~$196 million ~~during~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. The ~~increases are~~increase for the three- and six-month periods is primarily attributable to our May 2019 issuance of $4.0 billion of senior notes, ~~partially offset by related increases in interest income as a result~~which was intended to be used to fund our planned acquisition of ~~higher cash and cash equivalents balances. These items are discussed further below in~~ ~~Liquidity and Capital Resources~~.Advanced Disposal. For an update on these debt balances, see Note 14 to the Condensed Consolidated Financial Statements.

Loss on Early Extinguishment of Debt

In May 2019, WM issued $4.0 billion of senior notes~~which are discussed further below in~~ ~~Summary of Cash~~ and ~~Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations~~~~. Concurrently, we~~ used $344 million ~~of the net proceeds from the newly issued senior notes~~ to retire $257 million of certain high-coupon senior notes. The cash paid to retire the high-coupon senior notes includes the principal amount of the debt retired, $84 million of related premiums, which are classified as loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations, and $3 million of accrued interest.

Equity in Net Losses of Unconsolidated Entities

We recognized equity in net losses of unconsolidated entities of $14 million and $40 million for the three and six months ended June 30, 2020, respectively, compared to $16 million and $25 million for the three months and six months ended June 30, 2019, respectively. The ~~principal amount of senior notes redeemed within~~losses for each ~~series was as follows:~~

●

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

●

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

●

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

●

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

●

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

Inperiod are 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 ~~third~~losses incurred from these investments. Additionally, the 2019 periods include losses associated with our investment in a refined coal facility. During the first quarter of ~~2019, we elected to refund~~2020, the entity that holds and ~~reissue $99 million of tax-exempt bonds, which resulted~~manages our ownership interest in the ~~recognition~~refined coal facility sold a majority of its assets resulting in a $1$7 million ~~loss on early extinguishment of debt in our Condensed Consolidated Statement of Operations.~~

non-cash impairment charge at that time.

Other, Net

as the result of recent third-party investor’s transactions in these securities. The fair value of our investment was not readily determinable; thus, we determined the fair value utilizing a combination of quoted price inputs for the equity in our investment (Level 2) and certain management assumptions pertaining to investment value (Level 3).

Income Tax Expense

Our income tax expense was ~~$120~~$88 million and ~~$350~~$162 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, compared to ~~$99~~$115 million and ~~$325~~$230 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively. Our effective income tax rate was ~~19.4%~~22.2% and ~~22.2%~~19.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, compared to ~~16.6%~~23.3% and ~~18.9%~~24.0% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

The ~~increase~~decrease in our income tax expense and effective income tax rate when comparing the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 with the prior year periods ~~results from~~are driven by (i) a decrease in pre-tax income in 2020, which increased the effective tax ~~benefits for adjustments to deferred taxes due to changes in state and foreign laws and the impacts~~rate impact of ~~enactment of tax reform in 2018; partially offset by higher~~our federal tax credits, ~~in 2019. The increase in our effective tax rate for the nine-month comparison also results from an income tax benefit related~~and to ~~the settlement of various tax audits in 2018 and an~~a lesser extent; (ii) a $52 million non-cash impairment charge inrecognized during the first quarter of 2019 ~~which~~that was not deductible for tax ~~purposes. See~~ ~~Other, Net~~ ~~above~~purposes and (iii) excess tax benefits associated with equity-based compensation, which were slightly higher in 2020 than in the prior year.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, none of which directly affected our income tax expense for ~~additional information.~~the three and six months ended June 30, 2020 or are expected to have a material impact on our income tax expense in future reporting periods. The Company is evaluating the impact of the CARES Act and expects to benefit from the deferral of certain payroll taxes through the end of calendar year 2020.

Liquidity and Capital Resources

The Company consistently generates cash flow from operations that meets and exceeds ~~its~~our working capital needs, ~~the payments~~payment of ~~its dividend~~our dividends and investment in the business through capital expenditures and acquisitions. 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 ~~activities~~requirements that may arise during the year, including the anticipated impact from COVID-19. Additionally, the Company is taking numerous actions to manage costs and capital spending without compromising long-term strategic priorities. This includes route optimization initiatives, reducing overtime hours, limiting hiring and optimizing our workforce through improved retention and reduced turnover, reducing non-essential selling, general and administrative expenses, reducing incentive compensation costs and lowering capital expenditures to a level that is consistent with anticipated volume changes. Additionally, as a result of ~~changing business conditions or new opportunities.~~the CARES Act discussed above in Income Tax Expense, we are currently benefiting from the deferral of certain payroll taxes, which will continue through the end of calendar year 2020, favorably impacting our net cash provided by operating activities. The Company believes that its investment grade credit ratings, large value of unencumbered assets and modest leverage enable it to obtain adequate financing to meet its ongoing capital, operating and other liquidity ~~requirements.~~requirements, despite the disruptions and challenges presented by the COVID-19 pandemic. The long-term impacts from COVID-19 on our business, financial condition and operating results cannot be predicted with reasonable certainty at this time.

As discussed in Note 3 to the Condensed Consolidated Financial Statements, as of June 30, 2020, we had $3.0 billion of senior notes due 2024, 2026, 2029 and 2039 with a special mandatory redemption feature (the “SMR Notes”). The SMR Notes were issued in May 2019 with the intention of paying a portion of the consideration related to our pending acquisition of Advanced Disposal. The Advanced Disposal acquisition, and the revised acquisition terms announced on June 24, 2020, are discussed further in Note 8 to the Condensed Consolidated Financial Statements. Pursuant to the terms of the SMR Notes, we were required to redeem all of such outstanding notes equal to 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest, as a result of the acquisition not being completed by July 14, 2020. Accordingly, as of June 30, 2020, we have classified the SMR Notes, net of $22 million of related unamortized discounts and deferred issuance costs, as current obligations. As reported in Note 14 to the Condensed Consolidated Financial Statements, on July 20, 2020, we fulfilled our redemption obligations with respect to the SMR notes using available cash on hand and, to a lesser extent, commercial paper borrowings. The cash paid included the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest. When we announced the revised acquisition terms on

4240

June 24, 2020, we also advised that the Company anticipated funding the acquisition using a combination of credit facilities and commercial paper. Accordingly, as reported in Note 14 to the Condensed Consolidated Financial Statements, on July 28, 2020, we entered into a supplemental 364-day, $3.0 billion U.S. revolving credit facility maturing July 27, 2021, which will be used for general corporate purposes, including funding a portion of the Advanced Disposal acquisition and refinancing of indebtedness, and to provide working capital.

Summary of Cash and Cash Equivalents, Restricted Trust and Escrow Accounts and Debt Obligations

The following is a summary of our cash and cash equivalents, restricted trust and escrow accounts and debt balances (in millions):

September 30,

December 31,


2019

2018
Cash and cash equivalents

$
2,915

$
61
Restricted trust and escrow accounts:



Insurance reserves

$
289

$
252
Final capping, closure, post-closure and environmental remediation funds

108

103
Other

9

11
Total restricted trust and escrow accounts (a)

$
406

$
366
Debt:




Current portion

$
211

$
432
Long-term portion

13,147

9,594
Total debt

$
13,358

$
10,026


	June 30,		December 31,
	2020		2019
Cash and cash equivalents	$	2,663	$	3,561
Restricted trust and escrow accounts:
Insurance reserves	$	339	$	270
Final capping, closure, post-closure and environmental remediation funds		110		109
Other		3		4
Total restricted trust and escrow accounts (a)	$	452	$	383
Debt:
Current portion	$	3,190	$	218
Long-term portion		9,598		13,280
Total debt	$	12,788	$	13,498

(a)	Includes $70 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 in other current assets in our Condensed Consolidated Balance Sheets.

~~Cash and cash equivalents~~ ~~— Cash and cash equivalents at September~~As of June 30, ~~2019, include proceeds from the May 2019 issuance of senior notes and our September 2019 issuance of Canadian senior notes. These items are discussed further below and~~2020, in ~~Note 3~~addition to the ~~Condensed Consolidated Financial Statements.~~

~~Debt~~— AsSMR Notes, net of ~~September 30, 2019,~~$22 million of related unamortized discounts and deferred issuance costs, discussed above, we had $1.3 billion of debt maturing within the next 12 months, including (i) ~~$600~~$400 million of ~~4.75%~~4.60% senior notes that mature in ~~June 2020;~~March 2021; (ii) ~~$529~~$734 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities, and (iii) ~~$211~~$212 million of other debt with scheduled maturities within the next 12 months, including ~~$124~~$106 million of tax-exempt bonds. As of ~~September~~June 30, ~~2019,~~2020, we have classified $1.1 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 ~~$2.75~~$3.5 billion long-term U.S. and Canadian revolving credit facility (“$~~2.75~~3.5 billion revolving credit facility”). The remaining ~~$211~~$212 million is classified as current obligations.

~~In May 2019, WM issued $4.0 billion of senior notes consisting of:~~

●

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

●

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

●

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

●

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

●

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

The net proceeds from these debt issuances were $3.97 billion. Concurrently, we used $344 million of the net proceeds from the newly issued senior notes to retire $257 million of certain high-coupon senior notes. The cash paid includes the principal amount of the debt retired, $84 million of related premiums and $3 million of accrued interest as discussed above in ~~Loss on Early Extinguishment of Debt~~. We used a portion of the proceeds to repay our commercial paper borrowings. We intend to use the remaining net proceeds to pay a portion of the consideration related to our pending acquisition of Advanced Disposal, which is discussed in ~~Pending Acquisition~~ ~~below, and for general corporate purposes.~~

4341

~~In September 2019, Waste Management of Canada Corporation, an indirect wholly-owned subsidiary of~~ Guarantor Financial Information

WM ~~issued C$500 million, or $377 million, of 2.6% senior notes due September 23, 2026, all of which are~~Holdings has fully and unconditionally guaranteed ~~on a~~all of WM’s senior ~~unsecured basis by~~indebtedness. WM has fully and unconditionally guaranteed all of WM Holdings’ senior indebtedness. None of WM’s other subsidiaries have guaranteed any of WM’s or WM Holdings’ debt. In lieu of providing separate financial statements for the subsidiary issuer and guarantor (WM and WM Holdings), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for WM and WM ~~Holdings. The net proceeds from the debt issuance were C$496 million, or $373 million, which we intend~~Holdings on a combined basis after elimination of intercompany transactions between WM and WM Holdings and amounts related to ~~use for general corporate purposes.~~investments in any subsidiary that is a non-guarantor (in millions):

~~See Note 3 to the Condensed Consolidated Financial Statements for more information related to the debt transactions.~~


	June 30,		December 31,
	2020		2019
Balance Sheet Information:
Current assets	$	2,554	$	3,491
Noncurrent assets		15		16
Current liabilities		3,098		127
Noncurrent liabilities:
Advances due to affiliates		19,336		19,345
Other noncurrent liabilities		7,410		10,988


	Six Months Ended
	June 30, 2020
Income Statement Information:
Revenue	$	—
Operating income		—
Net loss		151

Summary of Cash Flow Activity

The following is a summary of our cash flows for the six months ended June 30 (in millions):

Nine Months Ended

September 30,

2019

2018
Net cash provided by operating activities

$
2,852

$
2,658
Net cash used in investing activities

$
(2,096)

$
(1,506)
Net cash provided by (used in) financing activities

$
2,080

$
(1,015)


	Six Months Ended
	June 30,
	2020		2019
Net cash provided by operating activities	$	1,621	$	1,900
Net cash used in investing activities	$	(918)	$	(1,565)
Net cash (used in) provided by financing activities	$	(1,575)	$	1,822

Net Cash Provided by Operating Activities — Our operating cash flows ~~increased by $194 million for the nine months ended September 30, 2019,~~decreased as compared with the prior year period, largely as a result of the impacts of COVID-19, which contributed to a significant decline in earnings. Other contributors impacting our operating cash flows for the reported periods include: (i) ~~higher earnings~~an increase in interest payments in the current year period primarily associated with our ~~collection and disposal business~~May 2019 issuance of $4.0 billion of senior notes and (ii) ~~net favorable changes in our operating assets and liabilities, net of effects of acquisitions and divestitures; offset slightly by~~ higher ~~interest~~bonus payments in the current year period. These results were partially offset by (i) lower income tax payments in the current year period; (ii) the cash benefit associated with deferring certain payroll taxes as provided for by the CARES Act, which is discussed in the Income Tax Expense section and (iii) benefits from alternative fuel tax credits.

Net Cash Used in Investing Activities — The most significant items included in our investing cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are summarized below:

●

Acquisitions — We spent ~~$513~~$1 million and ~~$342~~$440 million for acquisitions during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, related to our Solid Waste business. These amounts exclude cash used in financing and operating activities related to the timing of contingent consideration paid. Our acquisition spending in 2019 isrelates primarily ~~attributable~~ to our acquisition of Petro Waste Environmental LP, which is discussed further in Note 98 to the Condensed Consolidated Financial Statements.

●

Capital Expenditures — We used ~~$1,532~~$895 million and ~~$1,240~~$1,049 million for capital expenditures during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase is primarily~~Company continues to maintain a disciplined focus on capital management to prioritize investments in the long-term growth of our business and for the replacement of aging assets; however, we are currently taking proactive steps to reduce the amount of capital spending required due to ~~an intentional focus on accelerating certain collection fleet and landfill spending to support~~ the ~~Company’s strong collection and disposal growth.~~decrease in volumes as a result of COVID-19.

●

Other, Net — ~~We used $80 million of cash for~~The year-over-year changes in other investing activities ~~during the nine months ended September 30, 2019, which was~~were primarily ~~related to (i)~~driven by changes in our ~~investments~~investment portfolio associated with a wholly-owned insurance ~~captive~~captive. During the six months ended June 30, 2020 and 2019, we used $33 million and $81 million, respectively, of cash from restricted cash and cash equivalents to invest in available-for-sale ~~securities and (ii) a $20~~securities. Additionally, during the first quarter of 2019, we had $17 million ~~initial cash payment for low-income housing investments, which is discussed further in Note 5 to the Condensed Consolidated Financial Statements. These items were partially offset by~~of cash proceeds from the redemption of our preferred stock received in conjunction with the 2014 sale of our Puerto Rico ~~operations, which is discussed in Note 13 to the Condensed Consolidated Financial Statements.~~operations.

Net Cash (Used in) Provided by ~~(Used in)~~ Financing Activities — The most significant items affecting the comparison of our financing cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are summarized below:

●

Debt (Repayments) Borrowings ~~(Repayments)~~ — The following summarizes our cash borrowings and repayments of debt (excluding our commercial paper program discussed below) for the ~~nine~~six months ended ~~September~~June 30 (in millions):

2019

2018
Borrowings:




Revolving credit facility (a)

$
—

$
119
Canadian term loan and revolving credit facility

—

8
Senior notes

3,971

—
Canadian senior notes

373

—
Tax-exempt bonds

214

—
Other debt

—

47

$
4,558

$
174
Repayments:




Revolving credit facility (a)

$
(11)

$
(75)
Canadian term loan and revolving credit facility

—

(117)
Senior notes

(257)

—
Tax-exempt bonds

(193)

(52)
Other debt

(41)

(94)

$
(502)

$
(338)
Net cash borrowings (repayments)

$
4,056

$
(164)


	2020		2019
Borrowings:
Senior notes	$	—	$	3,971
	$	—	$	3,971
Repayments:
Revolving credit facility (a)	$	—	$	(11)
Senior notes		(600)		(257)
Tax-exempt bonds		(52)		(94)
Other debt		(53)		(23)
	$	(705)	$	(385)
Net cash (repayments) borrowings	$	(705)	$	3,586

(a)

Our revolving credit facility was amended and restated in ~~June 2018.~~November 2019.

In May 2019, we issued $4.0 billion of senior notes to position us to fund our pending acquisition of Advanced Disposal. Refer to Note 3 to the Condensed Consolidated Financial Statements for additional information related to the July 2020 Special Mandatory Redemption of $3.0 billion of these senior notes and our other debt borrowings and repayments.

●

Premiums Paid on Early Extinguishment of Debt — During the ~~nine~~six months ended ~~September~~June 30, 2019, we paid premiums of $84 million to retire certain high-coupon senior notes. ~~See Note 3 to the Condensed Consolidated Financial Statements for further discussion of this transaction.~~

●

Commercial Paper Program — During the ~~nine~~six months ended ~~September~~June 30, 2019, ~~and 2018,~~ we made net cash repayments of $1,001 million ~~and had net cash borrowings of $523 million (net of the related discount on issuance), respectively,~~ under our commercial paper program. Borrowings incurred in 2019 were primarily to support acquisitions and for general corporate purposes. We repaid the outstanding balance in the second quarter of 2019 with proceeds from the May 2019 issuance of senior notes discussed above. ~~Borrowings incurred in 2019 were primarily to support acquisitions and for general corporate purposes.~~We had no commercial paper borrowings during the six months ended June 30, 2020.

●

Common Stock Repurchase Program — During the ~~nine~~six months ended ~~September~~June 30, 2020, we repurchased $402 million of our common stock, which includes $313 million related to a February 2020 accelerated share repurchase agreement and $89 million in open market transactions. In the first quarter of 2020, to enhance our liquidity position in response to COVID-19, we elected to temporarily suspend additional share repurchases for the foreseeable future. During the six months ended June 30, 2019, we repurchased $244 million of our common stock, which includes $180 million related to the May 2019 accelerated share repurchase agreement and $64 million in open market transactions. We also paid $4 million related to share repurchases executed in December 2018. We expect these 2019 share repurchases to achieve the intended share count reduction to offset dilution from our stock-based compensation plans. During the nine months ended September 30, 2018, we repurchased $750 million of our common stock. See Note 12 to the Condensed Consolidated Financial Statements for additional information.

~~As a result of the pending acquisition of Advanced Disposal discussed in~~ ~~Pending Acquisition~~ ~~below, we do not expect additional share repurchases in 2019.~~

●

Cash Dividends — For the periods presented, all dividends have been declared by our Board of Directors.

We paid cash dividends of ~~$658~~$466 million and ~~$605~~$440 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in dividend payments is primarily due to our quarterly per share dividend increasing from ~~$0.465 in 2018 to~~ $0.5125 in ~~2019.~~2019 to $0.545 in 2020 which was offset, in part, by a reduction in our common stock outstanding as a result of our common stock repurchase program.

Free Cash Flow

~~As is our practice, we~~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.

Our calculation of free cash flow and reconciliation to net cash provided by operating activities is shown in the table below (in millions), and may not be calculated the same as similarly-titled measures presented by other companies:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018
Net cash provided by operating activities

$
952

$
874

$
2,852

$
2,658
Capital expenditures

(483)

(404)

(1,532)

(1,240)
Proceeds from divestitures of businesses and other assets (net of cash divested)

9

10

29

106
Free cash flow

$
478

$
480

$
1,349

$
1,524


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net cash provided by operating activities	$	856	$	1,010	$	1,621	$	1,900
Capital expenditures		(436)		(578)		(895)		(1,049)
Proceeds from divestitures of businesses and other assets (net of cash divested)		3		8		15		20
Free cash flow	$	423	$	440	$	741	$	871

Pending Acquisition

On April 14, 2019, we entered into an Agreement and Plan of Merger ~~(the “Merger Agreement”)~~ to acquire all outstanding shares of Advanced Disposal for $33.15 per share in cash, representing a total enterprise value at the time of $4.9 billion when including approximately $1.9 billion of Advanced Disposal’s net debt. On June 24, 2020, we entered into an amendment to the Agreement and Plan of Merger (as amended, the “Merger Agreement”), pursuant to which a subsidiary of WM will acquire all outstanding shares of Advanced Disposal for $30.30 per share in cash, representing a total enterprise value of $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt. Advanced Disposal’s solid waste network includes 95 collection operations, 73 transfer stations, 41 owned or operated landfills and 22 owned or operated recycling facilities. We currently expect the acquisition to close by the end of the third quarter of 2020. The ~~transaction is~~Merger Agreement provides that the Company and Advanced Disposal will have a mutual right to terminate the Merger Agreement after September 30, 2020 if the closing has not occurred, and that date will automatically extend to November 30, 2020 under certain circumstances.

On June 24, 2020, we also announced that we and Advanced Disposal have entered into an agreement, whereby GFL Environmental will acquire a combination of assets from us and Advanced Disposal for $835 million to address substantially all of the divestitures expected to ~~close during~~be required by the U.S. Department of Justice in connection with the Advanced Disposal acquisition. As with the Advanced Disposal acquisition, the sale of assets to GFL Environmental remains subject to clearance from the U.S. Department of Justice and is also conditioned on the closing of our acquisition of Advanced Disposal.

Subsequent Events

On July 20, 2020, we fulfilled our redemption obligations with respect to the SMR Notes using available cash on hand and, to a lesser extent, commercial paper borrowings. The cash paid includes the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest. As of June 30, 2020, we had approximately $22 million of unamortized discounts and deferred issuance costs related to the SMR Notes. The $30 million of premiums paid and $22 million of unamortized discounts and deferred issuance costs will be included in the calculation of our expected loss on early extinguishment of debt in our Consolidated Statement of Operations in the third quarter of 2020.

On July 28, 2020, we entered into a supplemental 364-day, $3.0 billion U.S. revolving credit facility maturing July 27, 2021, which will be used for general corporate purposes, including funding a portion of the Advanced Disposal acquisition and refinancing of indebtedness, and to provide working capital. The facility provides the Company the option to convert outstanding balances into a term loan maturing no later than the first ~~quarter~~anniversary of ~~2020,~~the maturity date, subject to the ~~satisfaction~~payment of ~~customary closing conditions, including regulatory approvals. On June 28, 2019, Advanced Disposal announced that 85.9%~~a fee and notifying the administrative agent at least 15 days prior to the original maturity date. WM Holdings, a wholly-owned subsidiary of WM, guarantees all the obligations under the $3.0 billion revolving credit facility. The rates we pay for outstanding ~~shares of its common stock entitled~~loans are generally based on LIBOR, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR ranges from 1.0% to ~~vote were voted in favor of~~1.3%. Based on our current ratings, the ~~proposal~~rate which we expect to ~~adopt the Merger Agreement at a special meeting of stockholders held that day.~~pay will be LIBOR plus 1.225%.

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 and reserves associated with our insured and self-insured claims, as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.

Off-Balance Sheet Arrangements

We have financial interests in unconsolidated variable interest entities as discussed in Note 1413 to the Condensed Consolidated Financial Statements. Additionally, we are party to guarantee arrangements with unconsolidated entities as discussed in the Guarantees section of Note 76 to the Condensed Consolidated Financial Statements. These arrangements have not materially affected our financial position, results of operations or liquidity during the ~~nine~~six months ended

~~September~~ June 30, ~~2019,~~2020, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

Seasonal Trends

Our operating revenues tend to be somewhat higher in summer months, primarily due to the higher construction and demolition waste volumes. The volumes of industrial and residential waste in certain regions where we operate also tend to increase during the summer months. ~~Our second and third quarter revenues and results of operations typically reflect these seasonal trends.~~

Service disruptions caused by severe storms, extended periods of inclement weather or climate extremes resulting from climate change can significantly affect the operating results of the Areas ~~impacted.~~affected. On the other hand, 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 Areas ~~affected.~~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, ~~such revenue can generate earnings at comparatively lower margins~~ as a result of significant start-up costs and other ~~factors.~~factors, such revenue can generate earnings at comparatively lower margins.

Inflation

While inflationary increases in costs can affect our income from operations margins, we believe that inflation generally has not had, and in the near future is not expected to have, any material adverse effect on our results of operations. However, a portion of our collection revenues are generated under long-term agreements with price adjustments based on various indices intended to measure inflation. Additionally, management’s estimates associated with inflation have had, and will continue to have, an impact on our accounting for landfill and environmental remediation liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Information~~Except for the broad effects of the COVID-19 pandemic, including widespread business disruption and the negative impact on financial markets, theinformation about market risks as of ~~September~~June 30, ~~2019~~2020 does not differ materially from that discussed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and in Item 3 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Item 4. Controls and Procedures.

Effectiveness of 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 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 ~~September~~June 30, ~~2019~~2020 (the end of the period covered by this Quarterly Report on Form 10-Q).

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 ~~September~~June 30, ~~2019.~~2020. We determined that there were no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2019~~2020 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 76 to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors.

~~There~~Except as set forth below, 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, ~~2018 and in~~2019, as updated by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2019.~~2020.

~~Item 2.~~ ~~Unregistered Sales~~Our planned acquisition of ~~Equity Securities~~Advanced Disposal Services, Inc. (“Advanced Disposal”) and/or our planned divestitures to GFL Environmental (together, the “Pending Transactions”) may not occur at all, may not occur in the expected time frame or may involve the divestiture of more or different businesses and ~~Use~~assets than currently anticipated, which may negatively affect the trading price of ~~Proceeds.~~

~~The following table summarizes~~our common stock ~~repurchases made during the third quarter of 2019 (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

Programs

the Plans or Programs

July 1 — 31

—

$
—

—

$
1.3 billion

August 1 — 31

—

$
—

—

$
1.3 billion

September 1 — 30

0.3

$
114.76

0.3

$
1.3 billion

Total

0.3

$
114.76

0.3

and our future business and financial results.

~~In May~~On April 14, 2019, we entered into an ~~accelerated share repurchase (“ASR”)~~Agreement and Plan of Merger to acquire Advanced Disposal. On June 24, 2020, we entered into an amendment to the Agreement and Plan of Merger to revise the acquisition terms. If the acquisition is completed, Advanced Disposal will become an indirect wholly-owned subsidiary of WM. The consummation of the acquisition is not assured and is subject to certain conditions, including the affirmative vote of the holders of a majority of the outstanding shares of Advanced Disposal common stock to approve the revised acquisition terms, the expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder and the absence of any law or order restraining, enjoining or otherwise prohibiting the acquisition, as well as other customary closing conditions.

On June 24, 2020, we also announced that we and Advanced Disposal have entered into an agreement, whereby GFL Environmental will acquire a combination of assets from us and Advanced Disposal to ~~repurchase $180~~address substantially all of the divestitures expected to be required by the U.S. Department of Justice in connection with the Advanced Disposal acquisition. The sale of assets to GFL Environmental is conditioned on the closing of our acquisition of Advanced Disposal and other customary closing conditions.

The Pending Transactions are subject to a number of risks and uncertainties, including general economic and capital markets conditions; the effects that the announcement of the Pending Transactions may have on the respective businesses; inability to obtain required regulatory or government approvals for the Pending Transactions or to obtain such approvals on satisfactory conditions; inability to obtain approval from the stockholders of Advanced Disposal or to satisfy other closing conditions of the Pending Transactions; inability of a party to obtain financing necessary for the Pending Transactions or on attractive terms; the occurrence of any event, change or other circumstance that could give rise to the termination of a Pending Transaction; legal proceedings that may be instituted related to the Pending Transactions and the legal expenses and diversion of management’s attention that may be associated therewith; and unexpected costs, charges or expenses. We will be required to pay Advanced Disposal a termination fee of $250 million, as further specified in the Merger Agreement, if the Merger Agreement is terminated because (i) of the issuance of a nonappealable court order or legal restraint prohibiting the transaction or (ii) the transaction has not closed by September 30, 2020 (which date will automatically extend to November 30, 2020 under certain circumstances set forth in the Merger Agreement). Additionally, if the Pending Transactions are not completed, if there are significant delays in completing the Pending Transactions or if we are required to divest substantially more or different assets than currently anticipated, it could negatively affect the trading price of our common ~~stock. At the beginning of the repurchase period, we delivered $180 million cash~~stock and received 1.3 million shares based on a stock price of $109.59. The ASR agreement completed in September 2019, at which time we received 0.3 million additional shares based on a final weighted average per share price of $114.76.our future business and financial results.

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.

4847

Item 6. Exhibits.


Exhibit No.		Description
2.1		Amendment No. 1, dated June 24, 2020, to Agreement and Plan of Merger, dated April 14, 2019, by and among WM, Everglades Merger Sub Inc., and Advanced Disposal Services, Inc. [incorporated by reference to Exhibit 2.1 to Form 8-K filed June 24, 2020].

2.2		Amended and Restated Voting Agreement dated June 24, 2020 by and between WM and Canada Pension Plan Investment Board [incorporated by reference to Exhibit 2.2 to Form 8-K filed June 24, 2020].

10.1		Waste Management, Inc. Employee Stock Purchase Plan, As Amended and Restated May 12, 2020 [incorporated by reference to Exhibit 10.1 to Form 8-K filed May 15, 2020].

10.2		First Amendment to Waste Management, Inc. Stock Incentive Plan dated May 12, 2020 [incorporated by reference to Exhibit 10.2 to Form 8-K filed May 15, 2020].

22.1*		Guarantor Subsidiary.

31.1*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, of James C. Fish, Jr., President and Chief Executive Officer.

31.2*		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, of Devina A. Rankin, ~~Senior~~Executive Vice President and Chief Financial Officer.

32.1**		Certification Pursuant to 18 U.S.C. §1350 of James C. Fish, Jr., President and Chief Executive Officer.

32.2**		Certification Pursuant to 18 U.S.C. §1350 of Devina A. Rankin, ~~Senior~~Executive Vice President and Chief Financial Officer.

95*		Mine Safety Disclosures.

101.INS*		~~XBRL Instance Document – The Instance Document does not appear in the Interactive Data Files because its XBRL tags are embedded within the~~ Inline XBRL ~~document.~~Instance.

101.SCH*		Inline XBRL Taxonomy Extension ~~Schema Document.~~Schema.

101.CAL*		Inline XBRL Taxonomy Extension ~~Calculation Linkbase Document.~~Calculation.

101.LAB*		Inline XBRL Taxonomy Extension Labels.

101.PRE*		Inline XBRL Taxonomy Extension Presentation.

101.DEF*		Inline XBRL Taxonomy Extension ~~Definition Linkbase Document.~~Definition.

101.LAB*		~~XBRL Taxonomy Extension Labels Linkbase Document.~~

101.PRE*		~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

~~Exhibit 104~~104*		Cover Page Interactive Data File ~~– The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the~~(formatted as Inline XBRL ~~document.~~and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

4948

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
		~~Senior~~Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

	WASTE MANAGEMENT, INC.

	By:	/s/ LESLIE K. NAGY
		Leslie K. Nagy
		Vice President and
		Chief Accounting Officer
		(Principal Accounting Officer)



Date: ~~October 23, 2019~~July 30, 2020

5049


Leases	Classification		September 30, 2019
Assets
Long-term:
Operating	Other assets	$	461
Financing	Property and equipment, net of accumulated depreciation and amortization		345
Total lease assets		$	806

Liabilities
Current:
Operating	Accrued liabilities	$	91
Financing	Current portion of long-term debt		33
Long-term:
Operating	Other liabilities		387
Financing	Long-term debt, less current portion		293
Total lease liabilities		$	804


		Operating		Financing
2019 (excluding nine months ended September 30, 2019)	$	22	$	12
2020		65		42
2021		59		40
2022		59		39
2023		51		38
Thereafter		416		273
Total lease payments	$	672	$	444
Less: interest		(194)		(118)
Discounted lease liabilities	$	478	$	326


			WM		Non-Guarantor
	WM		Holdings		Subsidiaries		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	2,863	$	—	$	52	$	—	$	2,915
Other current assets		48		4		2,639		(46)		2,645
		2,911		4		2,691		(46)		5,560
Property and equipment, net		—		—		12,805		—		12,805
Investments in affiliates		25,940		26,367		—		(52,307)		—
Advances to affiliates		—		—		17,930		(17,930)		—
Other assets		5		10		8,729		—		8,744
Total assets	$	28,856	$	26,381	$	42,155	$	(70,283)	$	27,109

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	14	$	—	$	197	$	—	$	211
Accounts payable and other current liabilities		113		7		2,704		(46)		2,778
		127		7		2,901		(46)		2,989
Long-term debt, less current portion		10,611		248		2,288		—		13,147
Due to affiliates		18,039		188		6,709		(24,936)		—
Other liabilities		3		—		4,183		—		4,186
Total liabilities		28,780		443		16,081		(24,982)		20,322
Equity:
Stockholders’ equity		6,785		25,938		26,369		(52,307)		6,785
Advances to affiliates		(6,709)		—		(297)		7,006		—
Noncontrolling interests		—		—		2		—		2
		76		25,938		26,074		(45,301)		6,787
Total liabilities and equity	$	28,856	$	26,381	$	42,155	$	(70,283)	$	27,109


			WM		Non‑Guarantor
	WM		Holdings		Subsidiaries		Eliminations		Consolidated
Operating revenues	$	—	$	—	$	11,746	$	(137)	$	11,609
Costs and expenses		137		—		9,558		(137)		9,558
Income from operations		(137)		—		2,188		—		2,051
Other income (expense):
Interest expense, net		(258)		(15)		(28)		—		(301)
Loss on early extinguishment of debt		(70)		(14)		(1)		—		(85)
Equity in earnings of subsidiaries, net of tax		1,565		1,594		—		(3,159)		—
Other, net		—		68		(87)		(72)		(91)
		1,237		1,633		(116)		(3,231)		(477)
Income before income taxes		1,100		1,633		2,072		(3,231)		1,574
Income tax expense (benefit)		(123)		(4)		477		—		350
Consolidated net income		1,223		1,637		1,595		(3,231)		1,224
Less: Net income (loss) attributable to noncontrolling interests		—		—		1		—		1
Net income attributable to Waste Management, Inc.	$	1,223	$	1,637	$	1,594	$	(3,231)	$	1,223


			WM		Non-Guarantor
	WM(a)		Holdings(a)		Subsidiaries(a)		Eliminations		Consolidated
Cash flows provided by (used in):
Operating activities	$	—	$	—	$	2,852	$	—	$	2,852
Investing activities		—		—		(2,096)		—		(2,096)
Financing activities		—		—		2,080		—		2,080
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents		—		—		1		—		1
Intercompany activity		2,863		—		(2,863)		—		—
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		2,863		—		(26)		—		2,837
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		—		—		183		—		183
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	2,863	$	—	$	157	$	—	$	3,020


				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		Programs	the Plans or Programs
July 1 — 31	—	$	—	—	$	1.3 billion
August 1 — 31	—	$	—	—	$	1.3 billion
September 1 — 30	0.3	$	114.76	0.3	$	1.3 billion
Total	0.3	$	114.76	0.3