Waste Management 2007 Annual Report Download - page 83

identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This statement
also provides guidance for recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS No. 141(R) will be effective for the Company beginning
January 1, 2009. We are currently evaluating the effect the adoption of SFAS No. 141(R) will have on our
accounting and reporting for future acquisitions.
SFAS No. 160 — Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB
No. 51
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51, which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS No. 160 will be effective for the Company beginning January 1, 2009. We
are currently evaluating the effect the adoption of SFAS 160 will have on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
In the normal course of business, we are exposed to market risks, including changes in interest rates, Canadian
currency rates and certain commodity prices. From time to time, we use derivatives to manage some portion of these
risks. Our derivatives are agreements with independent counterparties that provide for payments based on a notional
amount, with no multipliers or leverage. As of December 31, 2007, all of our derivative transactions were related to
actual or anticipated economic exposures although certain transactions did not qualify for hedge accounting. We are
exposed to credit risk in the event of non-performance by our derivative counterparties. However, we monitor our
derivative positions by regularly evaluating our positions and the creditworthiness of the counterparties, all of
whom we either consider credit-worthy, or who have issued letters of credit to support their performance.
We have performed sensitivity analyses to determine how market rate changes might affect the fair value of our
market risk sensitive derivatives and related positions. These analyses are inherently limited because they reflect a
singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions.
The effects of market movements may also directly or indirectly affect our assumptions and our rights and
obligations not covered by the sensitivity analyses. Fair value sensitivity is not necessarily indicative of the ultimate
cash flow or the earnings effect from the assumed market rate movements.
Interest Rate Exposure. Our exposure to market risk for changes in interest rates relates primarily to our debt
obligations, which are primarily denominated in U.S. dollars. In addition, we use interest rate swaps to manage the
mix of fixed and floating rate debt obligations, which directly impacts variability in interest costs. An instantaneous,
one percentage point increase in interest rates across all maturities and applicable yield curves would have
decreased the fair value of our combined debt and interest rate swap positions by approximately $445 million at
December 31, 2007 and $460 million at December 31, 2006. This analysis does not reflect the effect that increasing
interest rates would have on other items, such as new borrowings, nor the unfavorable impact they would have on
interest expense and cash payments for interest.
We are also exposed to interest rate market risk because we have $418 million and $377 million of assets held
in restricted trust funds and escrow accounts primarily included within long-term “Other assets” in our Consol-
idated Balance Sheets at December 31, 2007 and 2006, respectively. These assets are generally restricted for future
capital expenditures and closure, post-closure and environmental remediation activities at our disposal facilities and
are, therefore, invested in high quality, liquid instruments including money market accounts and U.S. government
agency debt securities. Because of the short terms to maturity of these investments, we believe that our exposure to
changes in fair value due to interest rate fluctuations is insignificant.
Currency Rate Exposure. From time to time, we have used currency derivatives to mitigate the impact of
currency translation on cash flows of intercompany Canadian-currency denominated debt transactions. Our foreign
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