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HomeMy WebLinkAbout2023 Audited Statement of Revenues and Expenses - Waste Management Waste Management, Inc. of Florida STATEMENT OF REVENUES AND EXPENSES FOR THE FRANCHISE AGREEMENT WITH THE CITY OF SEBASTIAN, FLORIDA For The Year Ended December 31, 2023 - 1 - Carr, Riggs & Ingram, LLC 215 Baytree Drive Melbourne, Florida 32940 321.255.0088 386.336.4189 (fax) CRIcpa.com INDEPENDENT AUDITOR’S REPORT To the Management of Waste Management, Inc. of Florida Opinion We have audited the accompanying statement of revenues and expenses (“financial statement”) for the Solid Waste and Recyclables Collection Franchise Agreement with the City of Sebastian, Florida for the year ended December 31, 2023, and the related notes to the financial statement. In our opinion, the financial statement referred to above presents fairly, in all material respects, the results of operations of the City of Sebastian, Florida’s Solid Waste and Recyclables Collection Franchise Agreement between the City of Sebastian, Florida and Waste Management, Inc. of Florida for the year ended December 31, 2023 in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statement section of our report. We are required to be independent of the City of Sebastian, Florida and Waste Management, Inc. of Florida and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial Statement Management is responsible for the preparation and fair presentation of the financial statement in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of a financial statement that is free from material misstatement, whether due to fraud or error. In preparing the financial statement, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Waste Management, Inc. of Florida’s ability to continue as a going concern within one year after the date that the financial statement is available to be issued. - 2 - Auditor’s Responsibilities for the Audit of the Financial Statement Our objectives are to obtain reasonable assurance about whether the financial statement as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance w ith generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statement. In performing an audit in accordance with generally accepted auditing standards, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statement, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Waste Management, Inc. of Florida’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statement. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Waste Management, Inc. of Florida’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit. Melbourne, Florida April 19, 2024 Waste Management, Inc. of Florida Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida The accompanying notes are an integral part of this financial statement. - 3 - Revenues Services 3,332,067$ Other revenues 7,852 Total revenues 3,339,919 Expenses Operating: Salaries and wages 1,219,745 Truck – fixed 502,136 Truck – variable 1,010,988 Container – fixed 203,408 Container – variable 100,486 Operations support 558,236 Disposal 24,432 Franchise fees 96,092 Subcontractor costs and other 9,830 Total operating expenses 3,725,353 Selling, general and administrative expenses: Sales expenses - shared services 103,929 General and administrative - shared services 184,071 Loss on sale of asset 21,818 Total selling, general and administrative expenses 309,818 Total expenses 4,035,171 Expenses in excess of revenues before income taxes (695,252) Income tax benefit 177,498 Expenses in excess of revenues after income taxes (517,754)$ For the Year Ended December 31, 2023 Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida - 4 - Note 1: NATURE OF OPERATIONS Waste Management Inc. of Florida (the “Company”) is a wholly owned subsidiary of Waste Management Holdings, Inc. (a Delaware corporation), which in turn is a wholly owned subsidiary of Waste Management, Inc. (“WMI”). The Company is operated by the local district office located in Vero Beach, Florida, which oversees the contract. In June 2013, Waste Management, Inc. of Florida entered into a Franchise Agreement (the “Agreement”) with the City of Sebastian, Florida, to provide residential solid waste collection service, residential recycling collection service, commercial collection service and certain construction and demolition debris service, for a term of five years. This agreement began July 1, 2013, and had an automatic renewal clause for an additional five year term ending June 30, 2023. On May 10, 2017 the automatic renewal was agreed upon and the agreement expired on June 30, 2023. Effective, July 1, 2023, the City entered into an agreement which expires on August 31, 2030 with an option to renew for one additional five year term. The accompanying statement includes only those revenues and expenses applicable to the Agreement (see Note 4). The Company is allocated certain corporate expenses and receives certain corporate services from WMI. The Company’s financial position might be different if it operated as a stand-alone entity. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying statement was prepared for the purpose of complying with Article 13.2 of the Agreement. The accompanying statement has been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Financial Accounting Standards Board (FASB) provides authoritative guidance regarding U.S. GAAP through the Accounting Standards Codification (ASC) and related Accounting Standards Updates (ASUs). Revenue Recognition Revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The Company estimates its allowance for doubtful accounts based on historical collection trends, type of customer, such as municipal or non-municipal, the age of outstanding receivables and existing economic conditions. For the year ended December 31, 2023, there was no bad debt expense to allocate to the Agreement. Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida - 5 - Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of the statement of revenues and expenses in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives range as follows: Years Land improvements 5-20 Buildings and improvements 5-25 Vehicles 3-10 Machinery and equipment 3-10 Furniture and fixtures 5-10 Containers and compactors 4-12 Depreciation expense totaled $565,093 for the year ended December 31, 2023 and is included in the Truck-fixed, Container-fixed and Operations support expenses in the accompanying statement of revenues and expenses. Income Taxes Operating results of the Company are included in the consolidated federal income tax return of WMI. WMI files a combined state income tax return in Florida. Income taxes are allocated by WMI to the Company at the combined tax rate for 2023 of 25.53%. Deferred tax assets and liabilities (including any valuation allowance) are determined in accordance with the provisions of the FASB ASC 740, Income Taxes, and are recognized and maintained on a corporate-wide basis by WMI. For the year ended December 31, 2023, the net amount of income tax allocated to the Agreement for standalone financial statement purposes resulted in a $177,498 income tax benefit. Subsequent Events Management has evaluated subsequent events through the date that the financial statements were available to be issued, April 19, 2024 and determined there were no events that occurred that required disclosure. No subsequent events occurring after this date have been evaluated for inclusion in this financial statement. Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida - 6 - Note 3: PARENT COMPANY ALLOCATIONS WMI allocates shared services to the Company based on routes serviced under the Agreement to the total routes serviced. Charges allocated to the Agreement were $288,000 for the year ended December 31, 2023, and are included as selling, general and administrative expenses in the accompanying statement of revenues and expenses. In some cases, selling, general and administrative expenses are accumulated by WMI and are not allocated to the local business unit. Although some of these costs may be applicable to the local unit, to streamline the Company’s accounting procedures, these costs are not being allocated. WMI provides liability insurance coverage to the Company. The premium and deductible costs are allocated to the Company by WMI based on its revenues, property and other financial information, and are specifically identified by occurrence. The Company also participates in the WMI group insurance policy. Note 4: BASIS OF DETERMINING REVENUES AND EXPENSES APPLICABLE TO THE AGREEMENT The accompanying statement of revenues and expenses includes only those revenues and expenses applicable to the Agreement. Revenues under the Agreement have been specifically identified. The Company reports its operating expenses on a specific profit center basis (residential and recycling, commercial and roll-off serviced commercial). As a result, the Company has other waste collection operations, which are combined with the Agreement into the various profit centers for accounting purposes. Accordingly, certain allocations of specific profit center expenses were necessary to estimate expenses applicable to the Agreement. • Residential and recycling expenses are allocated based on the percentage of customers serviced under the Agreement to total customers serviced by the residential and recycling profit centers. All expenses, except sales and general and administrative expenses, listed on the statement of revenues and expenses include residential and recycling expenses allocated in this manner. • Roll-off expenses are allocated based on the percentage of the City of Sebastian’s roll-off revenue, compared to total roll-off revenue of the Company. All expenses, except sales and general and administrative expenses, listed on the statement of revenues and expenses include roll-off expenses allocated in this manner. • Commercial expenses are allocated based on the percentage of yardage of the containers serviced under the Agreement to the total yardage serviced by the commercial profit center. All expenses, except sales and general and administrative expenses, listed on the statement of revenues and expenses include commercial expenses allocated in this manner. Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida - 7 - Note 4: BASIS OF DETERMINING REVENUES AND EXPENSES APPLICABLE TO THE AGREEMENT (Continued) The various profit centers used by the Company classify expenses consistent with various expense classifications as disclosed on the statement of revenues and expenses. Accordingly, once the individual profit centers’ expenses applicable to the Agreement were determined using the above allocations, the amounts were totaled to arrive at the amounts disclosed on the statement of revenues and expense. Note 5: REVENUE Revenues under the Agreement are recognized when the performance obligation of providing various services have occurred. Disaggregated revenue as of December 31, 2023 consists of the following: Revenues Commercial 923,163$ Residential 2,201,019 Industrial 207,885 Other revenues 7,852 Total revenues 3,339,919$ For the Year Ended December 31, 2023 Note 6: FRANCHISE FEES EXPENSE As part of the Agreement between the Company and the City of Sebastian, Florida, franchise fees in the amount of 6% of gross revenues collected for commercial, residential and industrial services, shall be paid to the City of Sebastian, Florida on a monthly basis for those services billed by the Company. As of December 31, 2023, the Company had billed $3,332,067 for commercial, residential, and industrial services and had collected $1,601,533 in gross revenues related to the relevant services. The franchise fees due and paid to the City of Sebastian, Florida based on collections as of December 31, 2023 totaled $96,092. Note 7: ACCOUNTING FOR UNCERTAIN TAX POSITIONS Tax positions are recognized only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax position is recorded. The Company is subject to routine audits by taxing jurisdictions. Waste Management, Inc. of Florida Notes to the Statement of Revenues and Expenses for the Franchise Agreement with the City of Sebastian, Florida - 8 - Note 7: ACCOUNTING FOR UNCERTAIN TAX POSITIONS (Continued) As of December 31, 2023, any reserves recorded by WMI for uncertain tax positions are not allocated to the Company and are maintained at the corporate level.