Waste Management 2007 Annual Report Download - page 136

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recorded as either an increase or decrease to the asset balance and deferred as a component of “Accumulated other
comprehensive income” in the equity section of our Consolidated Balance Sheets. The net unrealized holding gains
on these instruments, net of taxes, were $5 million as of December 31, 2007 and $10 million as of December 31,
2006. Refer to Note 13.
Debt and interest rate derivatives — At December 31, 2007 and 2006, the carrying value of our debt was
approximately $8.3 billion. The carrying value includes adjustments for both the unamortized fair value adjust-
ments related to terminated hedge arrangements and fair value adjustments of debt instruments that are currently
hedged. See Note 7. For active hedge arrangements, the fair value of the derivative is included in other current
assets, other long-term assets, accrued liabilities or other long-term liabilities, as appropriate. The estimated fair
value of our debt was approximately $8.5 billion at December 31, 2007 and approximately $8.7 billion at
December 31, 2006. 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, 2007, 2006, and 2005 we completed several
acquisitions for a cost, net of cash acquired, of $90 million, $32 million, and $142 million, respectively.
Divestitures
The aggregate sales price for divestitures of operations was $224 million in 2007, $184 million in 2006 and
$172 million in 2005. The proceeds from these sales were comprised substantially of cash. We recognized net gains
on these divestitures of $59 million in 2007, $26 million in 2006 and $79 million in 2005.
Our 2007 divestitures have been made as part of our initiative to improve or divest certain under-performing
and non-strategic operations. As of December 31, 2007, our current “Other assets” included $5 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. Additional information related to our divestitures 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 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 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. 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
101
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)