Waste Management 2006 Annual Report Download - page 138

approximately $9.2 billion at December 31, 2005. The estimated fair values of our senior notes and convertible
subordinated notes are based on quoted market prices. The carrying value of remarketable debt approximates fair
value due to the short-term nature of the attached interest rates. The fair value of our other debt is estimated using
discounted cash flow analysis, based on rates we would currently pay for similar types of instruments.
18. Business Combinations and Divestitures
Purchase Acquisitions
We continue to pursue the acquisition of businesses that are accretive to our solid waste operations. We have
seen the greatest opportunities for realizing superior returns from tuck-in acquisitions, which are primarily the
purchases of collection operations that enhance our existing route structures and are strategically located near our
existing disposal operations. During the years ended December 31, 2006, 2005, and 2004 we completed several
acquisitions for a cost, net of cash acquired, of $32 million, $142 million, and $130 million, respectively.
Divestitures
The approximate aggregate sales price for divestitures of operations was $184 million in 2006, $172 million in
2005 and $39 million in 2004. The proceeds from these sales were comprised substantially of cash. We recognized
net gains on these divestitures of $44 million in 2006, $79 million in 2005 and $12 million in 2004.
Our 2006 divestitures have been made as part of our strategy to improve or divest certain under-performing and
non-strategic operations. As of December 31, 2006, our current “Other assets” included $250 million of operations
and properties held for sale. This balance is primarily attributable to our efforts to execute the strategy. As discussed
in Note 3, held-for-sale assets are recorded at the lower of their carrying amount or their fair value less the estimated
cost to sell. Our “(Income) expense from divestitures, asset impairments and unusual items” for the year ended
December 31, 2006 also includes $18 million of charges associated with impairments required to record
held-for-sale assets at their fair value. Additional information related to our divestiture activity is included in
Note 12.
19. Variable Interest Entities
We have financial interests in various variable interest entities. Following is a description of all interests that
we consider significant. For purposes of applying FIN 46(R), we are considered the primary beneficiary of certain
of these entities. Such entities have been consolidated into our financial statements as noted below.
Consolidated variable interest entities
Waste-to-Energy LLCs — On June 30, 2000, two limited liability companies (“LLCs”) were established to
purchase interests in existing leveraged lease financings at three waste-to-energy facilities that we operate under an
agreement with the owner. John Hancock Life Insurance Company (“Hancock”) has a 99.5% ownership interest in
one of the LLCs (“LLC I”), and the second LLC (“LLC II”) is 99.75% collectively owned by LLC I and the CIT
Group (“CIT”). We own the remaining equity interest in each LLC. Hancock and CIT made an initial investment of
$167 million in the LLCs. The LLCs used these proceeds to purchase the three waste-to-energy facilities that we
operate and assumed the seller’s indebtedness related to these facilities. Under the LLC agreements, the LLCs shall
be dissolved upon the occurrence of any of the following events: (i) a written decision of all the members of the
LLCs to dissolve, (ii) December 31, 2063, (iii) the entry of a decree of judicial dissolution under the Delaware
Limited Liability Company Act, or (iv) the LLCs ceasing to own any interest in the waste-to-energy facilities.
Income, losses and cash flows are allocated to the members based on their initial capital account balances until
Hancock and CIT achieve targeted returns; thereafter, the earnings of LLC I will be allocated 20% to Hancock and
80% to us and the earnings of LLC II will be allocated 20% to Hancock and CIT and 80% to us. All capital
allocations made through December 31, 2006 have been based on initial capital account balances as the target
returns have not yet been achieved. We are required under certain circumstances to make capital contributions to the
LLCs in the amount of the difference between the stipulated loss amounts and terminated values under the LLC
agreements to the extent they are different from the underlying lease agreements. We believe that the likelihood of
the occurrence of these circumstances is remote. Additionally, upon exercising certain renewal options under the
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WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)