Waste Management 2007 Annual Report Download - page 115

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accumulated fair value adjustments from interest rate swap agreements by underlying debt instrument category at
December 31 (in millions):
Increase (decrease) in carrying value of debt due to hedge accounting for interest rate swaps 2007 2006
Senior notes and debentures:
Active swap agreements ............................................. $(28) $(118)
Terminated swap agreements(a) ........................................ 100 136
72 18
Tax-exempt and project bonds:
Terminated swap agreements(a) ........................................ — 1
$72 $ 19
(a) At December 31, 2007, $33 million (on a pre-tax basis) of the carrying value of debt associated with terminated
swap agreements is scheduled to be reclassified as a credit to interest expense over the next twelve months.
Approximately $37 million (on a pre-tax basis) of the December 31, 2006 balance was reclassified into earnings
during 2007.
Interest rate swap agreements increased net interest expense by $11 million and $4 million for the years ended
December 31, 2007 and 2006, respectively, and reduced net interest expense by $39 million for the year ended
December 31, 2005. The significant decline in the benefit recognized as a result of our interest rate swap agreements
is largely attributable to the increase in short-term market interest rates, which drive our periodic interest obligations
under these agreements. The significant terms of the interest rate contracts and the underlying debt instruments are
identical and therefore no ineffectiveness has been realized.
Interest rate locks
In the past, we have entered into cash flow hedges to secure underlying interest rates in anticipation of senior
note issuances. These hedging agreements resulted in a deferred loss, net of taxes, of $24 million at December 31,
2007 and $28 million at December 31, 2006, which is included in “Accumulated other comprehensive income.” As
of December 31, 2007, $6 million (on a pre-tax basis) is scheduled to be reclassified into interest expense over the
next twelve months.
80
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)