Segment and Related Information

3 Months Ended

Mar. 31, 2021

Segment and Related Information

Segment and Related Information

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 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 three 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.

On an annual basis, we analyze the Areas’ income from operations margins for purposes of segment reporting and, if necessary, realign 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. No realignment was necessary for the periods presented.

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

Summarized financial information concerning our reportable segments for the three months ended March 31 is shown in the following table (in millions):

	Gross		Intercompany		Net		Income
	Operating		Operating		Operating		from
	Revenues		Revenues(c)		Revenues		Operations(d)
2021
Solid Waste:
Tier 1	$	1,639	$	(320)	$	1,319	$	425
Tier 2		1,007		(216)		791		202
Tier 3		1,660		(300)		1,360		291
Solid Waste		4,306		(836)		3,470		918
Other (a)		665		(23)		642		18
		4,971		(859)		4,112		936
Corporate and Other (b)		—		—		—		(286)
Total	$	4,971	$	(859)	$	4,112	$	650
2020
Solid Waste:
Tier 1	$	1,503	$	(280)	$	1,223	$	393
Tier 2		932		(198)		734		188
Tier 3		1,541		(294)		1,247		264
Solid Waste		3,976		(772)		3,204		845
Other (a)		554		(29)		525		(25)
		4,530		(801)		3,729		820
Corporate and Other (b)		—		—		—		(247)
Total	$	4,530	$	(801)	$	3,729	$	573

(a) “Other” includes (i) our Strategic Business Solutions (“WMSBS”) business; (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 businesses 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.

The increase in income from operations was primarily driven by (i) increased market values for renewable energy credits generated by our WM Renewable Energy business; (ii) a gain from the divestitures of certain ancillary operations and (iii) significantly higher commodity prices benefiting our recycling brokerage services.

(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.

The decrease in income from operations was primarily driven by increased expenses as a result of (i) higher incentive compensation; (ii) a charge pertaining to reserves for certain loss contingencies and (iii) investments we are making in our digital platform.

(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.

Income from operations in our Solid Waste business increased primarily due to (i) revenue growth from yield in our collection and disposal businesses; (ii) controlling our operating costs and margins with volume declines and (iii) higher recycling commodity prices. During the three months ended March 31, 2021, the contribution of Advanced Disposal to income from operations was offset by elevated depreciation and amortization of acquired assets.

The mix of operating revenues from our major lines of business for the three months ended March 31 are as follows (in millions):

	2021		2020
Commercial	$	1,131	$	1,063
Residential		782		650
Industrial		743		693
Other collection		116		112
Total collection		2,772		2,518
Landfill		915		887
Transfer		465		441
Recycling		342		254
Other (a)		477		430
Intercompany (b)		(859)		(801)
Total	$	4,112	$	3,729

(a) The “Other” line of business includes (i) our WMSBS business; (ii) our landfill gas-to-energy operations; (iii) certain services within our EES business, 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. 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 second and third quarter revenues and results of operations typically reflect these seasonal trends.

Prior year period operating results were negatively impacted by COVID-19, as volumes declined beginning in March 2020 in our landfill, industrial and commercial collection businesses due to 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.

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